The main port business was steady in '23, and the sharp decline in investment income dragged down profits; SIPG is expected to pick up year-on-year results; 1) Revenue increased 0.7% year over year to 37.55 billion yuan; 2) Net profit to mother fell 23.3% year on year to 13.20 billion yuan. Among them, investment income was 7.14 billion yuan (down 40.7% year on year), accounting for 54.1% of the company's net profit to the mother. The sharp decline was mainly due to a drop in high freight rates, and the profit of its shipping joint venture Dongfang Overseas declined sharply. Looking ahead to 24, the company's main port business will rely on geographical advantages, and profits will remain steady as the domestic and foreign economy recovers; shipping is disrupted by the Red Sea incident, and freight rates are supported, and the company's investment income is expected to improve. We lowered our 24/25 net profit forecast by 13%/17% to 15.09 billion yuan/15.36 billion yuan; added a 26-year forecast of 16.07 billion yuan. Based on 9.7x 24EPE, the target price was lowered by 5% to 6.3 yuan (average PE value in the company's three-year history) to maintain the “buy” rating.

Benefiting from domestic economic recovery, the company's port throughput growth rate picked up. In 2023, the company's container/cargo throughput reached 49.158 million TEUs per 564 million tons, up 3.9%/9.7% year on year (22: +0.6%/-4.7%). Among them, Yangshan Port's container throughput reached 25.07 million TEUs, an increase of 4.6% over the previous year, accounting for 50.9% of Hong Kong's container throughput. China's post-epidemic recovery led to an improvement in the company's port throughput growth rate due to the 23-year post-epidemic recovery. In '24, we believe that global macro-demand has stabilized, and the port throughput growth rate is expected to achieve medium to high single-digit growth, driving the company's port business performance. According to Ministry of Transport data, in January-January '24, the country's port container/cargo throughput increased by 12.1%/8.1% year-on-year (same period last year: +1.3%/+2.6%).

The decline in freight rates dragged down investment income. It is expected to improve the company's investment income by 7.14 billion yuan in 2014, down 40.7% year on year. Mainly due to the decline in shipping market sentiment, the sharp drop in freight prices dragged down the profits of the associated company Dongfang Overseas. The investment income from Dongfang Overseas was 860 million yuan (6.06 billion yuan in the same period last year). Since the beginning of the year, due to the Red Sea incident, freight rates have risen sharply and remained high. From January 1 to March 29, the Shanghai Export Container Freight Index (SCFI) increased 109.2% year-on-year. We expect that if the impact of the Red Sea incident continues in '24, compounded by macroeconomic recovery and support for freight rates, the company's investment income is expected to improve year-on-year.

Build a world-leading hub port and continuously optimize operations

In the short term, with the further recovery of the macroeconomy, the company's port business is expected to continue to grow; in the medium to long term, the company will continue to promote the “Southern Union, North, Rongxi and Xituo”, optimize the collection and evacuation system, and improve the level of port and shipping logistics services in the hinterland through vigorous development of multimodal transport such as water, sea rail, air and rail. Relying on superior geographical location, developed hinterland economy, good development environment, leading industry technology and efficient management, the company continues to strengthen its core competitiveness and is optimistic about the company's long-term development.

Risk warning: port throughput falls short of expectations; investment returns fall short of expectations; natural disasters; policy risks.