Equity transfer completed, business integration began
In July 2022, Hebei Province initiated port resource integration, and the shares of major port companies controlled by Hebei were transferred to Hebei Port Group. Beginning in 2023, Hebei Port Group will comprehensively control Qinhuangdao Port, Tangshan Port Area, Caofeidian Port Area, and Cangzhou Huanghua Port Area to further promote the integration of coal and ore transportation services. On the one hand, the integration of Hebei ports will effectively solve the problems of disorderly and vicious competition and repeated construction of ports in the province. In the future, demand for capital expenditure will decrease, and capacity utilization is expected to increase. On the other hand, port competitors in Hebei Province have declined, competition for low prices has abated, port rates are expected to be repaired, and some loss-making port enterprises are expected to achieve profits and gradually return to normal profit levels.
Port rates are expected to continue to rise
Integrating the former Qinhuangdao port, the Jingtang port area of Tangshan Port and the Caofeidian port area, Cangzhou Huanghua Port competes with each other, the Hebei State-owned Holding Terminal competes with terminals controlled by central enterprises such as SDIC Group, Huaneng Group, and Shenhua Group. Homogenization of port services has led to intense price competition. After integration, the ports of Qin, Tang, and Cang in the province each fought, and the era of homogenized competition between big but not strong came to an end. About 95% of Qin Gang's revenue comes from the handling business, and market pricing for handling fees began in 2015. Therefore, after integration, low rates are expected to be fixed, and profitability is expected to increase. Referring to Liaogang Co., Ltd., revenue per ton of bulk goods increased 90% after the integration of the port of Liaoning, and gross margin increased markedly.
Unlisted port 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. We believe that unlisted terminals are expected to be integrated into listed companies, leading to a second increase in Qin Port's shares. 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%. Hebei Port Group holds a large number of shares in unlisted port companies. Considering competition issues in the industry, it began entrusting Qingang Co., Ltd. to manage part of the shares at the end of 2022.
Profit forecasts and target prices
With throughput rebounding and port rates recovering in 2023, profits are expected to increase substantially. Further recovery in port rates and asset consolidation are expected to drive continued profit growth in the future. We expect net profit of RMB 18.11, 2.09, and $2,480 million for 2023-2025. The comprehensive equity FCFE valuation method and the comparable company Wind in 2023 agreed to average PE. Taking the average value of the two valuation results, the target price for Qingang shares was 5.69 yuan. For the first time, it was covered and given a “buy” rating.
Risk warning: risk of economic cycle fluctuations, downside risk of coal industry, risk of adjustment of charging policies, risk of regional port consolidation, risk of major pending litigation