The January-April valuation continues to recover

In January-April 2023, Tangshan Port's stock price rose sharply. We think it was a valuation repair process. At the beginning of 2023, Tangshan Port's expected PE for 2023 was 7.8 times and the dividend rate was 9%, which has strong investment appeal; the expected ROE is 10.8%, corresponding to 0.84 times PB, which is underestimated. The balance ratio of Tangshan Port in 2022 was only 12%, and the interest-bearing debt was less than 3 million yuan; on December 31, 2022, the market value was only 16.2 billion yuan, while cash reached 6.8 billion yuan, and the company's free cash flow was 2.4 billion yuan. If it continues to operate for 4 years, cash is expected to exceed the market value. As stock prices rose sharply, valuations also recovered.

The 2023 static valuation is more reasonable

By the end of April, Tangshan Port's expected PE for 2023 was 11.2 times, with a dividend rate of 6.2%, which is at a reasonable level; ROE is 10.8%, corresponding to 1.2 times PB, which is also at a reasonable level. The PE quartile of Tangshan Port is 57%, and the PB quartile is 43%, which is at an all-time medium level. So if you look at it statically, the valuation of Tangshan Port in 2023 is already at a reasonable level.

Port consolidation is expected to drive rate recovery

Beginning in 2023, Hebei Port Group will comprehensively control Qinhuangdao Port, Tangshan Port Area, Caofeidian Port Area, and Cangzhou Huanghua Port Area, which may effectively solve the problem of disorderly and vicious competition in ports within the province, and port rates are expected to be repaired. In 2022, Tangshan Port's loading and storage business revenue per ton was 2,084 yuan/ton, with a cargo throughput of 207 million tons. If the revenue per ton increases by 4 yuan/ton and throughput increases by 40 million tons in the future, it is expected that the net profit of Fumo's net profit will increase by 1.34 billion yuan, that is, the net profit of existing terminal assets to the mother is expected to exceed 3 billion yuan.

Unlisted terminal assets are expected to be consolidated

Hebei Port Group promises to resolve competition issues in the industry through various measures such as asset restructuring, asset swaps, equity swaps, business adjustments, and entrustment management within 5 years (from October 31, 2022). Unlisted terminals are expected to be integrated into listed companies, leading to revenue and profit growth at Tangshan Port. In 2022, the cargo throughput of ports in Hebei Province was 1,277 million tons, of which Qin Port shares accounted for 30% and Tangshan Port shares accounted for 16%. If the cargo throughput of the terminal integrated into Tangshan Port is 200 million tons in the future, and the profitability per ton is 80% of that of Tangshan Port, then it is expected to contribute around 2 billion yuan to the mother's net profit.

Considering the sharp increase in throughput, revenue, and profit of Tangshan Port in 2023Q1, the 2023-2024 forecast was raised to 2,091 million yuan, 2,256 billion yuan (the original forecast was 2,084 billion yuan, 2,244 million yuan), and the 2025 forecast of net profit of 2,414 billion yuan was introduced to maintain the “buy” rating.

Risk warning: Environmental production limits are becoming stricter, real estate and infrastructure investment is declining, port fee reduction policies are being introduced, dividend ratios are falling, and port asset integration is lower than expected