The net profit of shareholders of Cosco seaport in the first half of 2020 is lower than we expected. Due to a 15.6% year-on-year decline in the throughput of the holding terminal, the company's revenue fell 12.6% year-on-year to $452.7 million in the first half of 2020. Some terminals are in the early stages of development and production, affecting the company's profits in the first half of 2020. The company's shareholder net profit rose 10.5% year-on-year to $163.4 million, worse than we expected. Excluding the profit on the disposal of assets, the net profit of the company's shareholders fell by 34.5% compared with the same period last year. In the first half of 2020, the company's dividend ratio remained at 40%.

Terminal portfolio optimization and fine management are expected to improve the company's profitability. The current abundant cash at the Cosco seaport is expected to help stabilize its dividend ratio and bring flexibility to the terminal portfolio optimization strategy. With the increased control over the terminal portfolio, we believe that the driving force for the company's growth is shifting from rapid throughput growth to refined operations, which will improve the company's operating profit margins. With the recovery of China's foreign trade, the company's container throughput rebounded in July. But COVID-19 's epidemic, slowing global economic growth and complicated international relations are likely to continue to put pressure on the company's throughput growth in the second half of 2020.

Taking into account the attractive valuation and reliable dividend policy, reiterated the "collection" rating, but lowered the target price to HK $5.20. We believe that the company's high dividend yield should be valuable in the epidemic environment. Based on the fact that the price-to-book ratio of the company's disposal terminal assets is more than 1.5 times, we believe that the company's valuation is attractive. Our target price corresponds to 7.5x, 7.2x and 6.4x 2020-2022 price-to-earnings ratio.