The port business was under pressure in '22, but investment returns were improving; the 23 port business is expected to improve; SIPG announced its 2022 results: 1) revenue increased 8.7% to 37.3 billion yuan; 2) Return to the mother's net profit increased 17.3% to 17.2 billion yuan. Among them, investment income was 12 billion yuan (same increase of 19.3%), accounting for 70% of the company's net profit. The sharp increase in investment income was mainly due to a sharp rise in profits of the joint container shipping company Dongfang Overseas International. In terms of port business, the company's container throughput increased 0.6% in '22. The slowdown in growth was mainly due to the domestic epidemic and weak external demand. Looking ahead to '23, we expect the company's port business to improve as China recovers after the pandemic and global manufacturing PMI recovers, but investment income from container shipping will decline sharply year over year. We adjusted the net profit forecast for 23/24 -14%/+2% to 15.4 billion/17.3 billion yuan; added the 25-year net profit forecast of 18.4 billion yuan. Based on 10.0x 2023E PE, the target price was lowered by 8% to 6.6 yuan (the average PE value for three years in the company's history; the previous target price was based on the historical three-year PE average minus 1 standard deviation. The main reason for the increase in valuation was to consider improvements in port business in '23), maintaining the “buy” rating.

1H22 port operations were under pressure due to the epidemic. 2H22 containers increased 2.8% /9.8% year-on-year. In 2022, the performance of the company's port business was divided in the first half of the year: port operations suffered setbacks due to the Shanghai epidemic in the first half of the year; the external environment improved in the second half of the year, and port throughput increased twice over the same period last year. The company's container throughput increased 0.6% year over year in '22, and the growth rate slowed sharply (8.1% year-on-year growth rate in '21). Among them, 1H22/2H22 container throughput was -1.7%/+2.8% year-on-year (2H22 increased 9.8% month-on-month), and port business volume improved in the second half of the year.

Diversified development is improving. Dongfang's overseas investment income is +40.1% compared to the same period last year. The company focuses on the main port operation business and continues to explore diversified industrial development. In 2022, the company confirmed investment income of 12 billion yuan, an increase of 19.3% over the previous year, accounting for 70% of the company's net profit to the parent. Among them, the joint container shipping company Dongfang Overseas contributed 6.60 billion yuan in investment income, an increase of 40.1% over the previous year, mainly due to the sharp rise in prices of container shipping Changxie in '22, boosting profits. In terms of spot freight rates, since 2H22, high freight rates have declined sharply due to weak external demand and the gradual easing of disruptions in the global supply chain. Considering the sharp decline in spot freight rates, we expect earnings from overseas investment from the East to fall sharply year-on-year in '23.

Throughput is expected to rise steadily in 2023. The company is actively expanding the market by relying on its home port. The outlook is positive for 2M23. The company completed a port container throughput of 7.46 million TEUs, down 8.6% from the previous year, mainly due to the continuing impact of the epidemic at the end of '22 and coinciding with the Spring Festival holiday. We believe that since March, with the full resumption of work and production, the recovery in China's demand is compounded by the recovery in manufacturing demand in Europe/Southeast Asia, and port business volume is expected to gradually improve.

As the world's largest container port, Shanghai Port is an important link in China's “double cycle” and “Belt and Road” strategies. At the same time, the company is actively developing overseas ports. Israel's new port in Haifa is under steady construction, and the overseas layout will help the company develop new markets and cultivate new business formats.

Risk warning: 1) Port throughput growth falls short of expectations; 2) investment returns fall short of expectations; 3) natural disasters; 4) policy risks.