The first half of 2020 results are in line with our expectations.
The company's revenue fell 12.6% year-on-year to $453 million in the first half of 2020, mainly due to the COVID-19 epidemic, which led to a 12.2% year-on-year drop in container throughput in its subsidiaries. Costs fell only 3 per cent year-on-year, mainly affected by depreciation charges for newly developed terminals such as Abu Dhabi. As a result, gross profit fell 35 per cent year-on-year to $99.16 million. The profit contribution from joint ventures and associates fell 11 per cent compared with the same period last year. Homing net profit rose 10.5 per cent year-on-year to $163 million ($0.050 per share); excluding sales, adjusted net profit fell 34.5 per cent year-on-year to $94.8 million.
The recurrent net profit in the second quarter was $64.4 million, down 32% from the same period last year, but increased by 112% compared with the same period last year, and profitability recovered obviously. this is mainly due to the return of positive growth in terminal container throughput in the Greater China region (down 1.3% year-on-year in April, 2.6% year-on-year growth in May and 8.8% in June).
Trend of development
Profitability is recovering. With the relaxation of epidemic prevention and control measures and the gradual resumption of the economy, the company's container throughput returned to positive growth in May (comparable caliber, excluding sold terminals), mainly driven by the Greater China region. In June, EBITDA, the company's holding terminal (subsidiary) in Greater China, fell only 0.7 per cent year-on-year, while profit contribution from joint ventures and associates rose 4.6 per cent in the second quarter. While the outbreak still creates uncertainty about demand, especially at some overseas terminals, management expects the period when the outbreak has had the greatest impact on the port industry to be over.
A strong financial position ensures dividends. The company sold its interests in Yangzhou wharf and Zhangjiagang wharf in the first half of this year for a cash consideration of $251 million. The company also plans to sell its stake in Taicang Terminal. Given the company's ample cash position ($1.088 billion in cash on hand as of the second quarter) and sound financial leverage (29 per cent of net debt-to-equity ratio as of the second quarter), management is committed to maintaining a dividend yield of 40 per cent. According to our earnings forecast, the company's dividend yields in 2020 and 2021 are expected to reach 7.3% and 6.6%, respectively.
Profit forecast and valuation
We keep our profit forecasts for 2020 and 2021 unchanged, implying a 10% year-on-year increase in recurrent earnings in 2021. We maintain an outperforming industry rating, and taking into account the recovery of the company's profitability and the switch to valuation to 2021, we raised our target price by 16.5% to HK $5.58, corresponding to 8 times 2021 price-to-earnings ratio, which has 27.7% upside from the current share price. The current share price corresponds to 5.6 times / 6.3 times 2020 debase 21-year Pax E.
Risk
Throughput growth is lower than expected.