This report is read as follows:
The impact of the epidemic on Ningbo Port has receded. The investment value of a company depends on changes in profitability in the future.
Main points of investment:
The epidemic led to a decline in profits, lowering the target price to 3.8 yuan (the original target price 3.83 yuan) to maintain a "neutral" rating. The decline in throughput in the first half of the year and the reduction in port charges led to a 21% drop in net profit, which was lower than expected. Throughput is expected to resume growth in the second half of the year, but the fee reduction policy continues. The forecast EPS for 2020-21 will be reduced to 0.19,0.21 yuan (the original forecast is 0.20,0.21 yuan), and the forecast EPS for 2022 will be increased to 0.22 yuan. According to the DCF valuation method and comparable company PB, the target price is reduced to 3.80 yuan.
Port throughput resumed growth. As a result of the epidemic, the growth rate of cargo throughput slowed to 1.3% in the first half of the year, container throughput fell by 5.7%, and profits dropped sharply. Cargo throughput began in April and container throughput has resumed growth since June. As the impact of the epidemic weakens and the economy picks up, throughput growth is expected to continue to pick up in the second half of the year, and throughput is expected to rise periodically in 2021.
Increase market share by putting in production capacity. The market share of cargo and container throughput of Ningbo Port is increasing from 2010 to 19, and the growth rate of container throughput is significantly higher than that of Shanghai Port. Behind this is Ningbo Port's continuous expansion of capacity, with the original value of fixed assets growing at an annualized rate of 16% in 2010-19.
Ningbo Port still has more capacity to put into production in the future, and its market share is expected to continue to increase.
Waiting for profitability to rise. In 2010-19, both the ROE and the net interest rate of sales in Ningbo Port showed a downward trend. On the one hand, the rigid increase in labor costs and the decline in port charges lead to a decline in net interest rates, and on the other hand, the decline in the turnover of fixed assets caused by rapid production capacity. The increase in profitability in the future also depends on a slowdown in production capacity and a rebound in port throughput growth.
Risk hint. Global trade has declined, Sino-US trade conflicts have escalated, port rates have continued to fall, and capacity expansion has accelerated.