The increase in throughput and port rates drove a sharp increase in 21-year performance, raising the target price to HK $18.2. China Merchants Port announced its 2021 results: 1) revenue increased by 32.5% year-on-year to HK $11.9 billion; 2) net profit increased by 58.1% to HK $8.1 billion, of which investment income from joint ventures and joint venture companies was HK $7.3 billion, an increase of 62.8%. 3) the deduction of non-net profit increased by 81.3% to HK $7.5 billion compared with the same period last year, which is in line with the previous performance forecast. The strong performance was mainly driven by the increase in port throughput, the increase in port fees and the growth in profits of associated companies. Due to the tight global supply chain, we expect further increases in port rates in 2022. We will increase our 2022 EPS net profit forecast by 8% to HK $8.8 billion / 8.7 billion and target price by 8% to HK $18.2, based on 7.9x 2022e PE (2 standard deviations higher than the company's three-year historical PE average, valuation premium rate increase, company profitability improved, 2022E EPS 2.33 Hong Kong dollars). Maintain a "buy" rating.
Strong export demand drives port throughput growth
In 2021, the container throughput of China Merchants Port reached 135 million TEUs, an increase of 12.0% over the same period last year.
Among them, the container throughput of Pearl River Delta, Yangtze River Delta, Rim Bohai Sea and overseas ports increased by 5.8%, 7.7%, 20.4% and 16.3% respectively compared with the same period last year. In addition, the joint venture and joint venture company of China Merchants Port contributed HK $6.3 billion in investment income to the port business sector, an increase of 73.9% over the same period last year. The strong investment return is mainly due to the increase in profits from the Shanghai Group.
Port rates rise to boost profitability
China Merchants Port achieved an improvement in profit margin in 2021. The EBITDA profit margin / EBIT profit margin of the port business (excluding joint venture / joint venture company profits) reached 54.7% / 35.4% respectively, an increase of 3.0% and 6.3% respectively over the same period last year. The improvement in profit margin is mainly due to the increase in throughput and port fees.
Considering the high demeanor of the current shipping market, port operators may have greater advantages when negotiating rates with shipping companies. We expect port rates to be further raised in 2022 and the company's profit margins are expected to increase further.
Profits are expected to grow steadily in 2022, and we are optimistic about medium-and long-term development prospects. We expect that the container throughput of China Merchants Port is expected to achieve high single-digit growth on the basis of a high base in 2021. On the other hand, the increase in port fees will boost its port operating profit margins and enhance its profitability. In the medium to long term, we believe that the sustainable development of China Merchants Port in terms of technology and innovation empowerment (such as 5G Smart Port) will improve its operational efficiency and enhance the competitiveness of the port. Our previous target price of HK $16.9 is based on 7.3x 2021E PE.
Risk tips: 1) port fee growth is lower than we expected; 2) port throughput growth is lower than we expected; 3) investment return is lower than we expected; 4) geopolitical risk.