A large amount of cash has flowed in, and there is great potential for dividends

Qingang shares have large net cash inflows, low debt ratios, and great potential for dividends. In 2023, the net profit+depreciation and amortization of Qingang shares is expected to be close to 3 billion yuan, and the net operating cash inflow is expected to exceed 3 billion yuan; the port has entered a mature period, and capital expenditure is low. The capital expenditure is expected to be around 400 million yuan in 2023, and the project under construction is about 500 million yuan. The balance ratio and interest-bearing debt ratio of Qingang shares showed a downward trend. At the end of the third quarter of 2023, they were 32% and 22%, respectively, at a low level. The majority shareholder, Hebei Port Group, has large capital expenses on some of its unlisted assets and requires multiple dividends from listed companies. Qingang shares have strong dividend distribution capacity, and the dividend ratio has the potential to increase.

The comprehensive cost is low, and there is room for rate improvement

Qin Gang Co., Ltd. is mainly engaged in the port's coal handling and storage business. Looking at the dynamics, the single-ton revenue of the coal business has risen slightly since 2021, but the increase was low, and the gap with Tangshan Port narrowed markedly in the first half of 2023. Looking at it from a static perspective, although the coal port rate at Qinhuangdao Port is 2 to 7 yuan/ton higher than the surrounding major ports in 2023, after considering railway transportation costs, the integrated logistics cost was lower than that of major surrounding ports by 4 to 8 yuan/ton, so there is room for price increases. Assuming that the port rate of coal is increased by 1 yuan/ton, based on the calculation of 220 million tons in 2023, it can increase revenue by 220 million yuan. Assuming that the income tax rate is 20%, it can increase net profit by 170 million yuan.

Port asset integration, focus on fiduciary equity

In July 2022, Hebei Port Group promised to promote business integration through various measures such as asset restructuring, asset replacement, equity replacement, business adjustment, and entrustment management within 5 years to resolve competition issues in the industry. In 2022, Hebei Port Group handled 396 million tons of metallurgical goods such as metal ore and groceries, and 294 million tons of energy goods such as coal and oil. If the Qingang Joint Stock Company handles energy goods after the integration, then the throughput of the holding terminal will probably remain basically the same. In addition, Qingang Co., Ltd. is entrusted with managing some of the coal terminal shares held by Hebei Port Group. In 2022, net equity assets are about 1.5 billion yuan, and net equity profit is about 100 million yuan.

Lower profit forecasts and maintain “buy” ratings

The single-ton revenue growth rate of Qingang shares in 2023 fell short of expectations, and the 2023-2025 forecast net profit to mother was lowered to 16.2, 18.3, and 1.99 billion yuan (original forecast 18.1, 22.1, 24.8); considering future dividends, price increases, and consolidation potential, the “buy” rating was maintained.

Risk warning: Environmental production restrictions are becoming stricter, investment in real estate and infrastructure is declining, port fee reduction policies have been introduced, dividend ratios have declined, and port asset consolidation is lower than expected.