Incident Overview On September 14, 2020, Beibu Gulf Port issued the “Notice Concerning the Capital Increase Involving Related Transactions of the Holding Subsidiary Guangxi Beibu Gulf International Container Terminal Co., Ltd.”: All 6 container berths in operation at Qinzhou Port have been integrated into a unified terminal asset holding platform — unified management by Beiji. Meanwhile, in addition to COSCO SHIPPING and Temasek, which previously had shares in 6 berths, Sichuan and Chongqing state-owned assets participated in the Qinzhou Container Terminal for the first time after the country promulgated the “Western Land and Sea New Corridor Master Plan” in 2019. The background of Sichuan and Chongqing's state-owned Chengdu Trading and Chongqing Logistics participating in the capital increase and expansion of the Qinzhou container terminal shareholding platform under Beibuwan Port: the country's “Western Land and Sea New Corridor Master Plan” + significant increase in cargo volume along the new Western Land and Sea Corridor from January to July 2020+ the future need for Sichuan and Chongqing to participate in the international division of labor + the country's western development + Guangxi's open attitude to promote Beibu Gulf Port to become a “western port” jointly built and shared by the West. ① New land and sea corridors in the west: On August 2, 2019, the National Development and Reform Commission issued the “Western Land and Sea New Corridor Master Plan” to 13 central and western provinces, municipalities, autonomous regions, including Guangxi, Chongqing, and Sichuan, as well as China Railway Group. From January to July 2020, the volume of railway and sea intermodal transport containers completed at the Qinzhou Railway Container Center Station in the new channel was 139,000 standard, +115% over the same period last year. ② Strong overall growth: In 2014-19, Beibu Gulf Port's cargo throughput increased from 120 million tons to 230 million tons, with a CAGR of about 13.6%; container throughput increased from 1.12 million TEU to 4.12 million TEU, and the CAGR was about 30%. ③ Future needs for Sichuan and Chongqing to participate in the international division of labor: According to statistics from the Chinese Embassy in Singapore, it takes no less than 22 days for containers departing from Chongqing to go to Singapore via the Yangtze River Waterway; containers departing from Chongqing take only about 7 days to sail to Singapore via rail to Qinzhou Port. ④ Increased development of the western part of the country: In May 2020, the State Council issued the “Guiding Opinions on Promoting Western Development and Forming a New Pattern in the New Era”. Article 9 clearly states the need to strengthen the construction of open channels and actively implement the Sino-Singapore (Chongqing) strategic connectivity demonstration project. Improve the Beibu Gulf port construction and build an internationally competitive port cluster. ⑤ Guangxi's open attitude: In February 2020, Guangxi issued the “Implementation Plan for the Construction of the China (Guangxi) Pilot Free Trade Zone”. Article 7 of the main tasks is to build a new land and sea gateway port in the west. The specific implementation plan is to “promote the joint construction of a 'western port' in the western provinces, attract the western provinces to participate in the construction, operation and optimization and upgrading of Beibu Gulf ports through joint ventures and other methods, and jointly turn Beibu Gulf Port into a port jointly built and shared by the western provinces.” Specific capital increase plan: After the capital increase is completed, all existing container berths No. 1-6 in Qinzhou will be integrated into Beiji. After the capital increase and share expansion is completed, Beiji will remain a holding subsidiary within the Beibu Gulf Port consolidated statement. Chengdu Trading and Chongqing Logistics will become the new shareholders of Beiji, and CNOOC will hold 26% more shares than Singapore's Temasek to become the second largest shareholder of Qinzhou Container Terminal (Beiji). The two state-owned companies in Sichuan and Chongqing each hold 2.5% of the shares. Prior to the capital increase, Beiji's registered capital was 1.21 billion yuan. Beibu Gulf Port and its subsidiaries, Qinzhou Xinggang, and PSA Guangxi (the actual controller is Temasek), were shareholders of Beiji, with shareholding ratios of 10.64%/32.96%/7.4%/49%, respectively. After the capital increase was completed, CNOOC Terminal, Chengdu Trading and Chongqing Logistics became the new shareholders of Beiji. The registered capital of Beiji will increase from 1.21 billion yuan to 2,372 billion yuan. Beibu Gulf Port (Beibu Bay Port+Qinzhou Xinggang), CNOOC Terminal, PSA Guangxi, Chengdu Trading and Chongqing Logistics held 44%/26%/25%/2.5%/2.5%/2.5% of Beiji's shares, respectively. Although Qinzhou (Nanning) temporarily has limited radiation capacity for passenger and cargo in central and western China, far less than Guangzhou's radiation capacity to Hunan, Jiangxi, Fujian, and eastern Guangxi, the influence of Qinzhou (Nanning) will increase dramatically in the next few years. In addition to the aforementioned increase in the radiation capacity of cargo, passenger transportation will also increase dramatically in the future. In the future, Qinzhou (Nanning) will be a passenger transport and labor distribution center covering central and western China and Southeast Asia. ① Chongqing-Guiyang High Speed Rail: It has been included in the national “Medium- and Long-Term Railway Network Plan”. It is expected to start construction during the “14th Five-Year Plan” period. After the opening of traffic, the passenger transit time from Chongqing to Guiyang will be shortened to around 1 hour. ② Chenggui high-speed railway: It opened to traffic at the end of 2019. It takes about 3 and a half hours from Chengdu to Guiyang. ③ Guinan High Speed Rail: It is an important section of the Baotou to Haikou channel, the main “eight vertical and eight horizontal” high-speed rail channel in the national “Medium- and Long-Term Railway Network Plan”. It is expected to open to traffic in 2023. After the opening of the Guinan High Speed Rail, Chengdu and Chongqing will enter the four-hour business district of Qinzhou (Nanning). ④ Kun-Shenzhen High Speed Rail: The Kunming to Nanning and Yulin to Jiangmen sections are expected to commence construction during the “14th Five-Year Plan” period. After opening, the passenger transit time from Kunming to Shenzhen via Nanning will be shortened to about 4 hours. ⑤ Hunan High Speed Rail: A new north-south artery has been opened to traffic from Yongzhou to Nanning via Liuzhou. We believe that in the context of China's industrial migration to the west, the transportation structure of the central and western regions facing major adjustments, and ASEAN participation in the international division of labor, the future opening of passenger high-speed railways such as the Kun-Shenzhen High Speed Rail, the Yugui-Gui High Speed Rail, the Guinan High Speed Rail, and the Hunan High Speed Rail will make Qinzhou (Nanning) not only a distribution center for commodities and containers in the southwest region, but also a passenger flow and labor distribution center in central and southeast Asia. Since 2018, COSCO SHIPPING has continued to increase investment in Beibu Gulf Port and Qinzhou. ① In 2018, Zhonghai Wharf participated in Beibu Gulf Port's fixed increase and subscribed for 709.43 million shares in Beibu Gulf Port. After the subscription was completed, it held 4.99% of Beibu Gulf Port's shares. ② The 2019 China Sea Terminal Agreement transferred 92518 million shares of Beibu Gulf Port held by Beigang Group. After the transfer was completed, the share holding ratio of Beibu Gulf Port was 10.65%, making it the second largest shareholder of Beibu Gulf Port, a listed company. ③ In 2020, CNOOC participated in Beiji's capital increase and share expansion. Investment advice: We are optimistic that Beibu Gulf Port will become an international gateway port connecting central and western China and Southeast Asia. From now on, it will mainly serve the 3 provinces of Guangxi/Yunnan/Guizhou, and will serve 13 provinces and the Southeast Asia region in the future, with huge room for growth. We maintain our profit forecast, reaffirm our target price of 21.6 yuan/share, and reaffirm the “buy” rating. Although the impact of this capital increase plan on Beibu Gulf Port's performance is limited in the short term, state-owned assets from Sichuan and Chongqing have strong indicative significance for the participation in Qinzhou container terminal assets. We maintain the profit forecast of 11.7/14.5/1.74 billion yuan for 2020-22, respectively. The corresponding EPS was 0.72/0.89/1.07 yuan, respectively. According to the closing price of 10.94 yuan/share on September 17, 2020, the corresponding PE was 15.27/12.36/10.27 times, respectively, maintaining a target price of 21.6 yuan/share, and reaffirming the “buy” rating. Risks suggest that the macroeconomic environment may decline beyond expectations; the short-term situation in the South China Sea; and the short-term convertible debt-for-share price announced by Beibu Gulf Port has yet to be determined.