The core port on the Bohai Rim has remarkable location advantages. The company is a large-scale port enterprise leading the construction and operation of the Jingtang port area of Tangshan City. Its core business is port handling and storage business, and 1H2023's main business accounts for 87% of revenue. The location advantages of the port operated by the company are remarkable. The specific manifestations are superior natural conditions, convenient transportation, and good hinterland resources. More than 65% of Tangshan's steel production capacity is the company's dominant supply hinterland. 2023Q1-Q3, the company's revenue increased 1% year over year. Net profit of the mother increased 16% year over year.

I am optimistic that the company will focus on its main business, and there is still room for dividends to rise. Since 2020, the company has successively divested non-core businesses, and the company's profitability has increased accordingly. The gross margin of 2023Q1-Q3 has increased to 49%, ranking first among comparable companies. The company has retained more cash since focusing on its main business. The dividend ratio increased to 70% in 2022, and the current dividend rate is 5.8%, all ranking first among comparable companies. We believe that the future increase in the company's dividends is mainly due to the financial pressure on the majority shareholders. In recent years, the scale of interest-bearing debt of Tangshan Industrial, the controlling shareholder of the company has risen sharply, and its subsidiaries have also lost money. There is still room for the company's dividends to rise under financial pressure.

Port integration continues to advance, and the industry has entered a new era. We have reviewed the development history of the port industry since 2000. After 2016, port integration became more frequent, and the industry entered a new era. Port integration aims to eliminate fierce competition with ports in the region in the past. Judging from past cases, port integration has had a significant effect on the gross margin and handling charges of port enterprises in the region. Yingkou Port's single-ton revenue increased 60% year-on-year in the first year after integration.

Backed by resources in the hinterland, the volume and price of the main port business have risen sharply. 1) Throughput: The company's main products are iron ore, steel and coal. The types of ore and steel products mainly depend on steel production in the hinterland. Since this year, the operating rate of steel companies in Tangshan has been high. We are optimistic that the increase in steel production in Tangshan will drive an increase in the company's ore and steel product throughput. With the strategic transformation of Qinhuangdao Port brought about the optimization of the competitive pattern and the increase in “north-south coal transportation” traffic, we are optimistic that the company's coal throughput will increase. The year-on-year growth rate of the company's cargo throughput from 2023-2025 is expected to be 11%/4%/4%, respectively. 2) Rates: In 2022, Hebei Province completed port integration, and the competitive landscape within the region improved. We are optimistic that the company's handling charges will rise in the short term after integration. The year-on-year growth rate of the company's main port business revenue from 2023-20225 is expected to be 20%/5%/5%.

The company's net profit from 2023-2025 is estimated to be 2.09 billion yuan, 2.20 billion yuan, and 2.34 billion yuan respectively, corresponding to PE 9.8x, 9.3x, and 8.7x, respectively. Referring to the 2024 average PE multiplier of 10.5x for comparable companies, due to the company's high dividend ratio and more cost-effective allocation, the company was valued 11 times in 2024. The target price was 4.08 yuan, which covered the “buy” rating for the first time.

The risk of economic fluctuations in the port hinterland; the risk of a sharp rise in labor costs; the risk of stricter environmental policies; the risk of port rate control.