Incident: Qingdao Port (601298.SH) issued a draft report on issuing shares and paying cash to purchase assets and raise supporting capital and related transactions, and adjusted the plan for the end of June 2023. The total consideration for the assets to be acquired is 9.44 billion yuan, the total net profit to the mother in 2023 is 0.812 billion yuan, and the total net assets to the mother are 6.957 billion yuan, corresponding PE is 11.62 times, and the corresponding PB is 1.36 times. The relevant information for each target is as follows:
Assets from the Rizhao Port Group: The total consideration is 4.629 billion yuan. The company plans to purchase shares with no more than 35 investors. The company plans to raise no more than 2 billion yuan in supporting capital by issuing shares to no more than 35 investors. The remaining portion will be settled with its own funds.
100% equity of Rizhao Port Oil Terminal Co., Ltd. (oil company): The target is mainly engaged in liquid bulk port handling and tank storage. The 2023 ROE was 5.72%, and the acquisition consideration was 2.838 billion yuan. The corresponding PE was 19.68 times, and the corresponding PB was 1.13 times.
Rizhao Shihua Crude Oil Terminal Co., Ltd. (Rizhao Shihua) 50% equity: The target is mainly engaged in liquid bulk port handling business. The 2023 ROE was 12.52%, the acquisition consideration was 1.791 billion yuan, corresponding PE was 11.60 times, and the corresponding PB was 1.45 times.
Assets from Yantai Port Group: Total consideration of 4.812 billion yuan. The company plans to purchase 0.697 billion shares at a price of 6.90 yuan per share, without considering raising supporting capital. After the transaction was completed, Shandong Port Group held 50.36% and 9.70% of the company's shares through Qingdao Port Group and Yantai Port Group respectively, holding a total of 60.06% of the company's shares, up 4.29 percentage points from the original level.
Shandong United Energy Pipeline Transportation Co., Ltd. (United Pipeline) 53.88% equity: The target is mainly engaged in liquid bulk port handling, tank storage, pipeline transportation, etc. In 2023, the ROE is 19.17%, and the acquisition consideration is 3.264 billion yuan. The corresponding PE is 8.51 times, and the corresponding PB is 1.63 times.
Shandong Gangyuan Pipeline Logistics Co., Ltd. (Gangyuan Pipeline) has 51% equity: mainly engaged in liquid bulk port handling, tank storage, pipeline transportation, etc. The 2023 ROE was 10.83%, and the acquisition consideration was 1.548 billion yuan. The corresponding PE is 11.89 times, and the corresponding PB is 1.29 times.
Comment:
Asset range optimization, excluding assets with ROE of the original plan below 5%. In order to better improve the quality of listed companies and the level of earnings per share, in this draft, the company adjusted the scope of assets to be acquired. Based on the 2022 financial data of each project, targets with an ROE of less than 5% in the scope of the original assets were not included in the scope of the proposed acquisition of the current plan, and added 51% shares in the Hong Kong Source Pipeline, where profits and construction progress increased rapidly after the announcement of the previous plan. After the plan was adjusted, the total ROE of the assets to be acquired in 2023 was 11.68%, which is higher than that of all listed companies in the A-share port sector except Qingdao Port.
The ROE of the acquired assets is close to that of listed companies, but the consideration valuation is lower than that of listed companies. Based on the 2023 financial data, Qingdao Port's ROE is 12.22%, which is close to the total ROE level of 11.68% of the assets to be acquired. Based on the closing price of July 9, 2024 (the company suspended trading for 5 days from July 10), the market value of Qingdao Port A shares was 64.197 billion yuan, corresponding to net profit and net assets attributable to mother in 2023. PE was 13.0 times and PB was 1.59 times. The total consideration for the assets to be acquired is 9.44 billion yuan, the total net profit to the mother in 2023 is 0.812 billion yuan, and the total net assets to the mother are 6.957 billion yuan. The corresponding PE is 11.62 times, and the corresponding PB is 1.36 times, which is lower than the valuation level of listed companies.
We expect this deal to boost the company's EPS. In this acquisition, assets from Rizhao Port Group were paid in cash, and the company plans to raise no more than 2 billion yuan in supporting capital by issuing shares to no more than 35 investors. According to the company's exam preparation data, regardless of the impact of raising supporting capital, EPS is expected to increase by 5.20% from 0.76 yuan/share to 0.80 yuan/share in 2023. EPS will increase from 0.20 yuan/share to 0.21 yuan/share in the first quarter of 2024, an increase of 3.78%. Considering the small scale of supporting capital raised and the impact of the relevant additional share capital on EPS dilution is expected to be low, we expect this transaction to increase the company's EPS.
As Shandong Port's integration progresses, the province will speed up asset rectification. There are no related acquisition plans yet: the impact of raising supporting capital will not be considered. After the transaction is completed, Shandong Port Group will hold 50.36% and 9.70% of the company's shares through Qingdao Port Group and Yantai Port Group respectively. In total, it holds 60.06% of the company's shares, an increase of 4.29 percentage points. At this stage, port integration in Shandong Province has entered the stage of in-depth business integration with Qingdao Port as the core. The acquisition will accelerate the integrated integration of high-quality liquid bulk terminals in Shandong Province, promote large-scale, intensive and collaborative development of the main business, and enhance overall competitiveness. Shandong Port Group promised to resolve peer competition by January 2027. Other handling business assets in the province have problems such as insufficient profitability and are still in the construction stage. They do not yet have the conditions to be injected into listed companies and are still in need of rectification. Listed companies at Qingdao Port have no plans to acquire related assets in the future.
Profit forecast and investment rating: Qingdao Port's performance is growing steadily. Regardless of the impact of this acquisition, the company is expected to achieve operating income of 18.711, 19.557, and 20.287 billion yuan from 2024 to 2026, up 3.0%, 4.5%, and 3.7% year on year, and achieve net profit to mother of 5.327, 5.8, and 6.315 billion yuan, up 8.2%, 8.9% year on year. The corresponding EPS is 0.82, 0.89, 0.97 yuan, and the closing price on July 9, 2024 (The company suspended trading for 5 days from July 10) Corresponding PE was 12.05, 11.07, and 10.17 times, maintaining a “buy” rating.
Risk factors: Port consolidation falls short of expectations; container throughput falls short of expectations; liquid bulk throughput falls short of expectations.