The slowdown in throughput growth combined with the decline in investment income dragged down 23-year net profit, and China Merchants Port released 23-year results: 1) operating income fell 8.5% year over year to HK$11.48 billion; 2) net profit to mother was HK$6.23 billion, down 19.9% year on year; 3) completed container/bulk throughput of 140 million TEUs per 550 million tons, up +0.7%/+2.0% year over year. The company announced a year-end dividend of HK$0.48 per share, with a dividend rate of 46% for the whole year. Port throughput growth slowed in 23 years due to the weakening global economy, increased geographical friction, and continued inflation; the shipping market sentiment declined, and the sharp decline in shipping investment income from the associated company SIPG weighed down on the company's net profit. We lowered our 24/25 net profit forecast by 19%/20% to HK$6.61 billion/ HK$7.31 billion, adding a 26-year forecast of HK$8.03 billion; based on 6.9x24E PE, the target price was lowered by 11% to HK$10.9 (the average PE value of the company's three-year history plus 1 standard deviation, and the valuation premium is expected to rebound year-on-year due mainly to the company's profit expected to rebound year-on-year).

The decline in throughput in the Pearl River Delta narrowed year on year. The Bohai Rim throughput grew steadily in 23 years, and the company completed a container throughput of 140 million TEUs, an increase of 0.7% year over year. Weak overseas demand led to a further decline in throughput growth. Looking at the subregions, the company's Pearl River Delta (PRD) /Yangtze River Delta (YRD) /Bohai Rim (Bohai Rim) /other regions/overseas throughput in China was -4.7%/+0.7%/+5.5%/-5.8%/+0.6% year-on-year in 2023. Among them, the decline in cargo volume in the Pearl River Delta was affected by the adjustment of the Shenzhen home port business and the decline in transit business in the Hong Kong market. The good throughput performance of the Bohai Rim and Yangtze River Delta was mainly due to the recovery in throughput at Shanghai Port, Qingdao Port, and Liaoning Port at a low base. On the revenue side, Pearl Delta/Yangtze Delta/Bohai Rim, and other regions of China/ overseas revenue were -19.7%/-53.2%/-1.2%/-0.4%/+11.1%, respectively. The sharp decline in revenue in the Yangtze River Delta was mainly due to the sale of 45% shares in Ningbo, and overseas business revenue growth was relatively good.

The profit margin of the port business increased year on year. Under the shipping market boom, the company's port business EBIT/EBITDA was 40.8/6.14 billion Hong Kong dollars respectively in '23, down -3.2%/-4.6% year on year. EBIT/EBITDA profit margins were 38.2%/57.5%, respectively, up 2.6/3.1 pct year on year. Benefiting from the increase in the port handling fee rate and the improvement of the cost structure, the profit margin of the port business increased. Investment income of HK$5.29 billion was achieved in '23, a year-on-year decrease of 28.6%. Mainly due to the decline in shipping market sentiment, declining freight rates suppressed investment income from SIPG's container shipping business.

The medium- to long-term global port layout potential is expected to be unleashed, and throughput is expected to increase year-on-year in 24. Overseas port operating profit accounts for a year-on-year increase of 3.0 pct to 31.0% of the company's total profit. With the gradual recovery of overseas demand, we are optimistic that the global port layout potential of China Merchants Port will gradually be unleashed in the medium to long term, and the ability to contribute to overseas business profits will be further enhanced. Looking ahead to 24 years, as foreign trade imports and exports stabilize, we expect the company's port throughput to resume single-digit year-on-year growth, domestic port rates may remain stable, and overseas port rates are expected to rise steadily.

Risk Alerts: 1) Global Economic Recession; 2) Port Throughput Growth Fewer Than We Expected; 3) Investment Returns Lower Than We Expected; 4) Geopolitical Risks.