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观点 | 市场大幅波动,看好港口低估值高成长龙头

Opinion | The market fluctuates greatly, and I am optimistic about undervalued ports and high growth leaders

中金點睛 ·  May 6, 2022 14:55

When the market fluctuates greatly, the port industry is often able to outperform the market because of its steady growth. In the long run, after years of pressure on port rates, with the substantial improvement in the performance of upstream shipping companies, we expect port rates to gradually stabilize. We are optimistic to occupy the hinterland location advantage, undervalued, high dividend, high flexibility of the individual stocks.

Abstract

Why is the undervalued port leading company worth configuring at this point?

The impact of the short-term ► epidemic is limited, and the production acceleration brought about by the early backlog of exports and the rush effect after the lifting of the closure policy is expected to drive high demand growth:2-3Q22 We expect the performance of the port sector to improve marginally, dry dispersion and crude oil to improve, and containers to focus on the post-epidemic recovery of foreign trade.

The disorderly expansion of ► coastal ports has slowed.From 2016 to 2021, fixed asset investment in coastal ports will decrease by about 5% a year. The future demand growth will gradually fill the surplus capacity, the overall investment return of the port sector may be improved, and usher in the dividend era of high investment return.

The integration of regional integration of ► ports effectively curbs the vicious competition.The country began to promote the reform of regional port integration in 2015, with the goal of "one province, one group". Ports in Zhejiang, Jiangsu, Liaoning, Shandong and other provinces began to integrate one after another. we believe that from the perspective of competition pattern, the era of price war among ports in each region is coming to an end, and the profitability of the plate as a whole is expected to pick up.

► benefits from antitrust expiration and shipping magnanimity transmission, and the pricing mechanism is more flexible.The anti-monopoly investigation and supervision of the port by the National Development and Reform Commission has expired one after another. in addition, as the port industry belongs to the upstream shipping industry, reviewing the history, the shipping scene will be transmitted to the port. The competition between ports has gradually shifted from the competition of quantity to the competition of quality and service, and the pricing mechanism of the industry itself is expected to be re-straightened out with the marginal improvement tendency of pricing policy, bringing value return and valuation repair.

Risk

The macroeconomic downturn and the spread of the COVID-19 epidemic exceeded expectations.

Text

Port industry: the heavy weapon of a big country, facing the wind

Port essence: location and hinterland determine size, competition pattern determines profitability.

The main business of the port industry is to provide customers with services such as loading, unloading, storage and barging of containers, dry bulk and liquid bulk cargo. Port is the gathering point and hub of land and water transportation, the distribution center of industrial and agricultural products and foreign trade import and export materials, and also the place where ships berth, load and unload goods, get on and off passengers and replenish supplies. As of last year, China had formed five port groups around the Bohai Sea, the Yangtze River Delta, the southeast coast, the Pearl River Delta and the southwest coast. There are eight transportation systems, such as coal, oil, iron ore, containers, grain, commodity cars, land ro-ro and passenger transport. The upstream of the port industry includes port operation machinery and equipment manufacturing enterprises, port operation management information technology enterprises, etc.; downstream mainly includes logistics service enterprises and trade enterprises.

The port has the nature of regional monopoly, and the port cargo source and business volume depend to a large extent on the resource constraints, economic situation and policy development of the region. In the Bohai Rim region, due to the relatively developed heavy industry, the port enterprises in the region benefit from the influence of resource transport demand, and the cargo throughput is relatively large, and the port goods are mainly supplied by coal, ore, timber and other upstream raw materials. The economy of the Yangtze River Delta, the southeast coastal areas and the hinterland of the Pearl River Delta is relatively developed, the scale of foreign trade is large, and there is a strong demand for import, export and domestic trade, so the cargo handling scale of the port is relatively large, and the main sources of cargo are containers and dry bulk cargo; while the economic hinterland of the southwest coastal areas are Guangxi and Hainan, the level of economic development is relatively weak, and the development of its ports benefits more from the support and promotion of national policies.

Chart 1: the main investment characteristics of the port industry and the distribution of major coastal ports

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Source: Ministry of Transportation, China International Capital Corporation Research Department

Figure 2: the port industry is closely connected with the upstream and downstream.

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Source: company announcement, China International Capital Corporation Research Department

China's ports lead the world in throughput and continue to develop with the acceleration of the country's opening up to the outside world.

As a major trading country, the scale of China's ports leads the world.After China joined the WTO in 2001, with the rapid development of China's foreign trade, the port cargo throughput shows a trend of accelerated growth, and China's ports have ushered in a golden period of development. From 2000 to 2021, the container throughput of Chinese ports increased from 4.1 million TEU to 280 million TEU, with an annual compound growth rate of 22%. By 2021, China accounted for 32% of the world's container throughput, and China accounted for seven of the top 10 container ports in the world in 2021, reflecting the important development position of China's ports in the world.

Figure 3: the container throughput of the country's major ports has increased steadily, and the growth rate has slowed down year by year in the past 10 years.

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Source: Ministry of Transportation, China International Capital Corporation Research Department

Chart 4: the proportion of container throughput in China has increased rapidly after China's entry into WTO.

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Source: Shanghai International Shipping Research Center, China International Capital Corporation Research Department

Chart 5: China occupies seven seats in the world's top ten container ports in 2021

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Source: Alphaliner, China International Capital Corporation Research Department

Port investment: valuation is low, previous repression factors have changed

The overall valuation of the port is low and the future margin is good. Since 2000, China's export transport demand has maintained a relatively rapid growth, and the port sector has also benefited from the support of the country's export-oriented economic development policy, and the overall valuation is about 30 times high. In the past three years, due to the influence of anti-monopoly investigation, trade friction, COVID-19 epidemic and other unfavorable factors, the performance and growth center of the port sector have gradually moved down, and the valuation of the port sector has dropped to a range of 10-15 times PE. We believe that with the slowdown in port capacity expansion, the continuous progress of regional integration and the improvement of independent pricing power, the port sector is expected to usher in a dual repair of performance and valuation.

Figure 6: historical review of the main drivers of the port industry

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Source: Wande Information, China International Capital Corporation Research Department

Figure 7: the price-to-earnings ratio of the port sector is already at 1 times the standard deviation below the average.

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Source: Wande Information, China International Capital Corporation Research Department

Overcapacity oversupply turns to a basic match between supply and demand:In order to support the economic and trade development of the hinterland, large-scale infrastructure projects have been carried out in various ports during the 10th five-year Plan and the Eleventh five-year Plan period, and the capacity expansion of the port industry has been further accelerated. However, due to the change in the growth rate on the demand side, during the 12th five-year Plan and the 13th five-year Plan period, the port began to pay more and more attention to the problem of overcapacity. After the coastal port construction has matured since 2016, the trend of new capital expenditure investment has slowed down. Since 2017, the financing scale of China's port enterprises has been declining, port investment has returned to rationality, port industry overcapacity, industry prosperity is expected to decline and other factors have tended to ease. The disorderly expansion of coastal ports has slowed, with fixed asset investment in coastal ports falling by about 4.8 per cent a year from 2016 to 2021. We believe that the future demand growth may be able to gradually fill the surplus capacity, the overall return on investment in the port sector may gradually increase, and the port industry will gradually usher in a dividend era of high investment return.

Figure 8: low fixed asset investment in coastal ports in the past 5 years

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Source: national Bureau of Statistics, China International Capital Corporation Research Department

Chart 9. After 2014, the number of berths and annual throughput of new (expanded) terminals decreased significantly.

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Source: China Port Association, Wande Information, China International Capital Corporation Research Department

The hinterland demand of some regional ports and the problem of vicious competition brought about by customer overlap gradually improve with the advance of port integration.The port distribution density of the five major port groups in China (around the Bohai Sea, the Yangtze Delta, the southeast coast, the Pearl River Delta and the southwest coast) is high, with high coincidence and fierce competition. The integration of existing ports through reasonable planning, such as the division of goods or the joint management of functional zones, can theoretically help to solve the irrational and homogeneous competition between adjacent ports. For example, in 2007, Guangxi Province launched a plan to integrate Fangcheng Port, Qinzhou Port and Beihai Port into Beibu Gulf Port; in 2015, Zhejiang Province took the lead. Jiangsu Province, Liaoning Province, Shandong Province, Fujian Province, Guangdong Province and other places have begun to propose the integration of ports in the province. During the "Twelfth five-year Plan" and "13th five-year Plan", the port ushered in the tide of integration and mergers and acquisitions, with the goal of "one province, one group". By the end of 2021, the initial integration of China's five major coastal port groups has been basically completed, and the regional integration and functional zoning of ports have been realized. We believe that from the perspective of competition pattern, the price war era of ports in each region is coming to an end, the regional pattern is improving, and the overall profitability of the plate is expected to rise synchronously.

Figure 10: progress in the integration of some ports

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Source: company announcement, China Port Association, China International Capital Corporation Research Department

► port charging policy is becoming more and more market-oriented. Since 2017, port antitrust investigations have expired one after another. in addition, as the port industry belongs to the upstream shipping industry, and the port is currently one of the more tense and congested links in the supply chain, we believe that the profits and cash flow of shipping enterprises have increased significantly, which provides a good external environment and sufficient space for port enterprises to negotiate. The competition between ports has shifted from quantity to quality and service, and the pricing mechanism of the industry itself is expected to be re-straightened out with the marginal improvement tendency of port pricing policy. We believe that enterprises can flexibly adjust pricing according to their own operation, cost and other factors, which is expected to bring value return and valuation repair, especially under the market conditions with large fluctuations, the hub port enterprises with relatively stable performance and continuous dividends have a strong allocation value.

Figure 11: some government pricing / guiding price items in port charges have been transformed into market-regulated prices.

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Source: Ministry of Transportation, China International Capital Corporation Research Department

Chart 12Pang 2017-2018 NDRC's anti-monopoly investigation on the reduction of rates and the lifting of ordinary heavy boxes in foreign trade

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Source: official website of port companies, China International Capital Corporation Research Department

Note: the reduction corresponds to the price reduction in 2018.

Chart 13 after the rate reduction in 2017-2018, the gross profit margin of container handling operations in major coastal ports has been negatively affected to a certain extent.

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Source: company announcement, China International Capital Corporation Research Department

Future development trend: transformation (diversification) or going out to sea as a way out

We believe that with the gradual slowdown of the capacity expansion of the port industry, transformation and going out to sea has become a new idea for the development of the port industry, and the development of the port industry has entered a new stage.

Transformation:The traditional port industry takes cargo handling and storage as the main business, but there are a large number of passenger flow, logistics and capital flow in the port. Port companies can make use of their own advantages to provide value-added services, including integrated logistics services, supply chain finance and so on. Reduce dependence on a single type of goods and a single business On the other hand, the cash flow of the port plate is good, and we can choose assets with reasonable returns to invest outside the port loading and unloading business. at present, finance is a more common choice, such as Shanghai Bank, Postal Savings Bank of China and so on. In addition, invigorating the stock of assets such as land in the port area can also bring new growth momentum to the company.

Figure 14: Qingdao Port: open up Shandong Geolian customers, improve the profit contribution of liquid bulk business

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Source: company announcement, China International Capital Corporation Research Department Note: use segment pre-tax profit

Chart 15: Shanghai Group: using capital and land resources, financial and real estate profits share increased

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Source: company announcement, China International Capital Corporation Research Department

► goes out to sea:As shipping is global, as long as the place of production and consumption do not coincide after the industrial transfer, there is still a demand for cargo handling, while emerging market countries are experiencing relatively rapid growth. therefore, the throughput of overseas terminals is likely to grow faster than that of domestic terminals in the future. In recent years, the distribution of overseas ports by Chinese enterprises has increased significantly. In 2013 alone, Chinese companies won the right to operate 17 overseas terminals. For investment-controlled companies such as COSCO Shipping Port and China Merchants Port, they have started to invest in overseas terminals a long time ago. In 2021, the overseas throughput of the two companies has achieved higher growth than that at home, and has accounted for 23% and 25% of the total throughput. Among them, China Merchants Port Company acquired the right to operate 15 terminals (including one domestic terminal) in eight countries on four continents through the acquisition of 49 per cent of France's Terminal Link Port Company. At present, among the top 200 overseas ports in the world in terms of throughput, more than 20 Chinese enterprises are involved in operation, more than half of which are invested in 2013 and beyond.

Chart 16: the throughput of Cosco seaborne port and China Merchants Port overseas terminal is increasing.

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Source: company announcement, China International Capital Corporation Research Department

Figure 17: attempts by Shanghai Port Group and Qingdao Port to go to sea

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Source: company announcement, China International Capital Corporation Research Department

Be optimistic about the hub ports with low valuation, steady growth and high dividends

The impact of the short-term epidemic is limited, and the rush effect after the lifting of the closure policy may weaken the negative impact.Although the epidemic repeatedly has a certain impact on port operations, the main coastal ports strictly implement the special shift system internally, adopt grid management for front-line operators, maintain orderly port production, and the port area is in a state of normal operation. According to data from the Ministry of Transport, in the first quarter, the cargo throughput of ports across the country was 3.631 billion tons, an increase of 1.6 percent over the same period last year, of which the cargo throughput of foreign trade was 1.106 billion tons, down 4.7 percent from the same period last year. The container throughput was 67.38 million TEU, an increase of 2.4 percent over the same period last year. Judging from more high-frequency data, the April outbreak also had a negative impact on port freight. According to the China Ports Association, the cargo throughput of major coastal hub ports decreased by 5.2% in mid-April compared with the same period last year, of which foreign trade cargo throughput decreased by 4.9% year-on-year, and domestic trade increased by 5.4%. In mid-April, the container throughput of the eight major hub ports decreased year-on-year, container throughput decreased by 5.7% year-on-year, foreign trade decreased by 4.1% and domestic trade decreased by 9.9%. Looking back, we believe that as the current epidemic is gradually brought under control, there is still room for a substantial rebound in the export demand of some goods stranded by logistics.

Chart 18: from January to March 2022, the container throughput of ports across the country reached 67.38 million TEU, an increase of 2.4% over the same period last year.

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Source: Ministry of Transportation, China International Capital Corporation Research Department

We are optimistic about the comprehensive port which occupies the hub location and has the ability of cargo supply chain and supporting business development.From the perspective of long-term development, with the increase of transit business, we think that container ports may be further concentrated, the growth of hub ports will exceed that of other ports, and the competition pattern is expected to continue to improve: 1) with the increase in labor costs, labor-intensive industries shift outward, the economic growth rate dominated by processing and export slows down, and it is difficult for the volume of containers in the hinterland to return to the state of rapid growth. Transit, logistics, freight forwarding and other services will be the focus of future port growth, and the hub port will highlight its node advantages. 2) in order to save costs and improve economy, the trend of large-scale container ships (at present, the largest container ship in the world has reached 24000 TEUs) is obvious. the role of hub ports in transit, cargo collection and distribution will be more significant; 3) the ports with good water depth and high loading and unloading efficiency can attract more containers.

Figure 19: the golden age of China's ports is over, and throughput growth is slowing down.

640?wx_fmt=pngSource: Shanghai International Shipping Research Center, Ministry of Transport, China International Capital Corporation Research Department

Chart 20: overseas experience: Busan Port has also experienced a slowdown in growth, but the growth rate of re-export business is still high.

640?wx_fmt=pngSource: Pusan Port Bureau, China International Capital Corporation Research Department

After years of pressure on port rates, with the significant improvement in the performance of upstream container companies, we expect container port rates to gradually stabilize and select undervalued and highly flexible stocks from the bottom up.

Chart 20: when the market is volatile, the port industry tends to outperform the market because of its steady growth.

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Source: Wande Information, China International Capital Corporation Research Department

Risk

► macro-economic downturn.The port is the "barometer" of the macro-economy, and the port production can reflect the macro-economic operation situation to a certain extent. If the macroeconomic decline exceeds expectations, it may have a negative impact on port throughput and logistics business.

► COVID-19 epidemic spread more than expected.If the spread of COVID-19 exceeds expectations and affects the delay in resuming work of some domestic enterprises, it may lead to a decrease in the demand for shipping trade and a decline in the efficiency of the collection and distribution port, which will adversely affect the future income and profit growth of port companies.

Edit / irisz

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