occurrences
On March 23, 2017, the company released its 2016 performance report. The report revealed that in 2016, the company completed cargo throughput of 57.3915 million tons, an increase of 22.47% over the previous year; operating income was 11666.5525 million yuan, a decrease of 6.13% over the previous year; net profit attributable to shareholders of listed companies was 85543 million yuan, a decrease of 83.97% over the previous year; basic earnings per share were 0.008 yuan, a year-on-year decrease of 84%.
Decline in performance due to reduced throughput of high-rate goods
The main reasons for the decline in 2016 results compared to the previous year were:
(1) The withdrawal of high-rate, highly polluting varieties such as dried cassava, and the number of low-rate loose ore varieties increased, leading to a year-on-year increase in throughput, and a slight decrease in operating income compared to the same period last year.
In 2016, the company completed a cargo throughput of 57.3915 million tons, an increase of 22.47% over the previous year. Among them, a cargo throughput of 29.08 million tons was completed in the first half of the year. Due to the country's economic restructuring and environmental requirements, low-rate iron ore explosively increased 236.77% year on year, coal increased 28.96% year on year, while the throughput of major business categories such as coke, non-ferrous ore, laterite nickel ore, plywood, and alumina declined to varying degrees. In order to attract supplies, the company adopted preferential policies, and the unit rate was reduced year over year. As a result, when throughput increased by 22.47% year on year, unit throughput revenue fell 23.35% compared to the full year of 2015, which ultimately led to a decline in performance. Before the economic restructuring, the company's main business was small to medium goods at high rates, which could reach up to 400 types, including coke, ferrous ore, iron ore, plywood, alumina, machinery and equipment, dried cassava, steel, fertilizer, table salt, palm oil, etc., and each product could achieve a throughput of 1 to 3 million tons.
(2) Competition between Hong Kong and Hong Kong intensified.
Lianyungang Port is bordered by the Shandong port cluster to the north. The port density within the region is high. The main inter-port competition comes from Qingdao Port and Rizhao Port. Due to the partial coincidence of economic hinterland, there is competitive pressure between Lianyungang Port and Qingdao Port and Rizhao Port in the transit of similar types of bulk goods. Although the total throughput of Lianyungang Port falls short of that of Rizhao Port and Qingdao Port, the cargo structure is relatively scattered and balanced, and the advantages in sourcing supplies such as alumina, grain, coke, non-ferrous ore, machinery and equipment, and plywood are obvious. Due to the overall shortage of supplies, coastal port rates are all discounted by various margins to attract supplies. The preferential treatment for large customers is even stronger, forming very full competition, and competition between ports has intensified.
(3) Wharf berths built earlier were gradually upgraded, and asset depreciation and financial expenses increased compared to the same period last year.
The wholly-owned subsidiary Lianyungang Xinlian Bulk Terminal Co., Ltd. terminal was put into use. Interest on loans was stopped being capitalized, and asset depreciation expenses increased. In the 2016 three-quarter report, fixed assets were $3718,66 million, and projects under construction were $1,905,27 million; financial expenses for the first three quarters of 2016 were $84.05 million, an increase of 59.28% over the previous year; the reduction in cargo port fee reimbursement led to a decrease of $5,538,800 in non-operating income, and non-operating expenses of labor costs payers of port construction fees increased by $2.2651 million. Net profit attributable to shareholders of listed companies in 2016 is expected to decrease by 80% to 90% compared to the same period last year.
We expect that depreciation for consolidation projects will be basically stable in the first half of 2017, and financial expenses, etc. will decrease.
By stabilizing the traditional high-rate supply share and expanding the competitive advantage of large berths for bulk cargo, performance will pick up somewhat.
Lianyungang Port Holding Group Co., Ltd. was established to integrate local ports. In August 2015, Lianyungang Port Group Co., Ltd. and Jiangsu Fangyang Group, Jiangsu Golden Oriental Group, Jiangsu Jinguan Investment and Development Group, and Jiangsu Yanwei Port Co., Ltd. formed Lianyungang Port Holding Group Co., Ltd. Lianyungang Port Group Co., Ltd. is the controlling shareholder of the company and holds 52.77% of the shares. The holding group established and integrated the wharves in the three counties under Lianyungang City. Currently, Lianyungang forms an integrated two-wing port layout. The center is the main port area, the north and south wings, the Xuxu port area, Guanyun, and Guannan port areas to the south, and the Ganyu port area to the north. In the process of forming a port holding group, it will achieve further integration of local ports, resolve competition issues in the industry, cultivate the profitability of small terminals, rationally plan and distribute hinterland resources, and further enhance business competitiveness.
Furthermore, Jiangsu Province plans to establish the Jiangsu Port Group to integrate the three major resources of anchorage, shorelines, and routes to avoid disorderly competition between various ports in Jiangsu Province and the same industry. At the same time, it can give full play to the advantages of each port, enhance the overall strength of Jiangsu Port, and play a more important role in connecting with the Yangtze River Economic Belt. Lianyungang has a natural geographical advantage and will be the most direct beneficiary after the establishment of the Jiangsu Port Group.
The leading position of the Iron and Water Intermodal Transport Service in the country
As the first railway and water intermodal transport pilot project in China, Lianyungang Port has extended the railway to the pier to achieve a seamless connection from shipping to rail transportation. At present, Lianyungang Port has opened up a second land bridge exit channel through Khorgos, operating a “five-point train” to places such as Zhengzhou, Xi'an, Alashankou, etc., to achieve “one-stop” customs declaration, inspection, and release with 15 provinces, regions, and cities in the central and western regions, making it the most convenient gateway to the sea in the vast and deep hinterland of the Midwest. The State Council's “Implementation Plan for Port Multimodal Transport Construction in the “13th Five-Year Plan” of the Yangtze River Economic Belt proposes strengthening the collaborative development of various models such as public water intermodal transport, iron and water intermodal transport, and strengthening the construction of transportation channels at key ports such as Lianyungang Port. The company transported more than one-third of the goods by rail in 2015. Currently, the pattern of public water intermodal transport, iron and water intermodal transport, and water-water transport is roughly a three-point pattern. Furthermore, in 2017-2020, the major development of the Jiangsu Railway, the Coastal Railway, the Xulian Passenger Terminal, etc. were completed one after another. Passenger and freight traffic were diverted, railway capacity increased, and Lianyungang as a transportation node will be beneficial to the company's development.
The Belt and Road Initiative, RCEP's major strategy promotes the handling of foreign trade goods, and the Regional Comprehensive Economic Partnership Agreement (RCEP) aims to closely integrate multiple bilateral free trade agreements between ASEAN countries and six countries, including China, Japan, and South Korea, to cover a land area of 3.5 billion people, with a total GDP of 22.6 trillion US dollars. America's withdrawal from TPP boosts RCEP, and the RECP agreement will support trade growth and supply chain deepening in the Asian region, expand China's imports and exports, and promote the construction of an East Asia Free Trade Zone.
As the most convenient overseas base for Central Asian countries, Lianyungang was identified as the first node city of the New Asia-Europe Continental Bridge in the “Belt and Road” plan. Lianyungang has already operated more than 10 railway trains to the central and western regions and Central Asian countries, and has opened 60 near-ocean routes including Japan, South Korea, Southeast Asia, Europe and the United States. 60% of the port's cargo throughput comes from the central and western regions, and undertakes more than 60% of container traffic across the mainland bridge. In the future, along with the deepening of RCEP negotiations, Lianyungang Port will play an increasingly important role as a bridge in East Asia and Central Asia economic and trade cooperation. The cargo throughput of Lianyungang in 2016 was 20.08 million tons, of which 55% were foreign trade goods.
The recovery of global shipping favors the development of the industry
Beginning on February 14, the BDI index rebounded sharply, and the Baltic Dry Bulk Price Index (BDI) continued to rise, breaking through the 1,200 mark on March 21. In February, the country's port container throughput was 15,38,000 TEU, up 7.8% year on year; national port cargo throughput was 913 million tons, up 10.1% year on year. The Shanghai Shipping Exchange recently released the “2016 and 2017 Water Transport Situation Report”, stating that as the growth rate of the world economy and international trade accelerates, it will drive the growth rate of global freight demand to continue to expand. The increase is expected to be around 3% in 2017. In an environment where shipping is picking up, port throughput will also rise, which is beneficial to the good development of the port shipping sector.
Profit forecasting
The company's net profit from 2016 to 2018 is estimated to be 0.087 million yuan, 38.5 million yuan, and 148 million yuan respectively, while EPS is 0.01 yuan, 0.04 yuan, and 0.05 yuan respectively. The company plans to establish a port holding group company to integrate local ports. Furthermore, the shipping industry as a whole is showing a recovery trend, and the company's performance is expected to grow in 2017, giving it an “increase in holdings” rating.
Risk warning
Group integration is progressing slowly, and the recovery of shipping falls short of expectations
