Events:

The company announces three quarterly reports for the year 17. In the first three quarters, the company achieved revenue of 5.943 billion yuan (+ 7.39%), net profit of 563 million yuan (+ 8.81%), net profit of 538 million yuan (+ 9.34%), basic EPS0.09 yuan (+ 0.32%) and weighted ROE of 5.12% (- 0.25%).

Comments:

1. Q3 performance is growing steadily, in line with market expectations.

In the third quarter, the company realized operating income of 1.948 billion yuan (- 20.59%), operating cost of 1.374 billion yuan (- 28.74%), gross profit of 574 million yuan (+ 9.3%) and gross profit margin of 29% (+ 8pct). We believe that the decline in revenue is mainly due to the reduction of trading businesses with low profitability, large capital consumption and risk, which has little impact on performance. The company's three expenses are 274 million yuan (+ 4.2%), the operating profit is 3.09 yuan (+ 14.47%), and the net profit is 208 million yuan (+ 5.98%), which is in line with market expectations.

2. The leading port in the Pearl River Delta

The port has the characteristics of regional monopoly, and the economic hinterland determines the texture of the port. The company has a vast economic hinterland, including most provinces and cities in southern China, and the direct economic hinterland is the Pearl River Delta and Guangdong Province. Nansha Port, the main container berth, has the advantage of short-distance transportation in the western and northern parts of the Pearl River Delta. Through the construction of Nansha Port Phase III project, the company will expand container handling capacity and enhance market competitiveness.

As the core operator of Guangzhou Port, the company operates and manages most of the container berths and most of the major production loading and unloading facilities above 10,000 tons in Guangzhou Port. As of December 31, 2016, the company mainly operates 68 berths, including 25 for containers, 4 for coal, 5 for oil and liquid chemicals, and 34 for other bulk cargoes. 75% of the cargo throughput and 85% of the container throughput of Guangzhou Port.

3. Port cargo throughput continues to recover.

Since 2016, port freight transport across the country has continued to recover, and the growth rate of cargo and container throughput has increased from 0-2% at the end of the year to 7%. The growth rate of business volume has continued to recover, driving the company's performance growth.

4. Profit forecast and valuation

We forecast that the annual EPS of the company in 17-18-19 will be 0.12, 0.14 and 0.15 yuan respectively, and the corresponding stock price will be PE57.6/50.5/46.5X. Consider the thematic opportunities such as Guangdong port integration and free trade zone, and maintain the "highly recommended-A" investment rating.

5. Risk hint: market competition intensifies and port integration falls short of expectations.