Qingdao Port: The northern comprehensive hub port Qingdao Port International Co., Ltd. is the main operator of Qingdao Port. After Shandong Province began port integration in 2018, Shandong Port Group has now become the company's indirect controlling shareholder. The actual controller is the Shandong Provincial State-owned Assets Administration Commission. Qingdao Port mainly provides port-related services such as handling, warehousing, and logistics support. The company currently operates five major port regions, and each port has clear divisions of labor; it conducts business through a special exhibition model: introducing partner shareholders to bundle the interests of partners, thus locking in supply sources. Qingdao Port is one of the few port companies listed with a low debt ratio while maintaining a high asset turnover ratio and net profit margin. Looking at the profit structure, the container business is the sector with the most room for growth. The contribution rate of this business to profit growth has reached 55% in the past two years; the liquid bulk business is the business sector that accounts for the largest share of the company's profit. In summary, this report mainly analyzes the profitability of the shipping and oil products business.

Container business: the hinterland and shipping routes jointly build a moat

Container business volume is increasing steadily and is growing: 1) The hinterland economy and trade volume both account for 1/3 of China, providing space for Qingdao Port's throughput growth; 2) The ocean route network is well-developed, providing the necessary conditions to attract hinterland supplies. In terms of multiple dimensions such as regional location, number of routes, route coverage, and weekly capacity, Qingdao Port is in a leading position compared to other ports in the Bohai Rim region, and with the increase in the number of routes, container throughput growth is significantly faster than the national level; 3) Shandong Province's policy support for attracting new routes for shipping companies Large, for a further increase in the number of routes in the future The icing on the cake; 4) In terms of handling fees, the anti-monopoly supervision period has ended, and the policy risk of future rate cuts has weakened; 5) In terms of financial performance, the special exhibition model and cost advantage have made the container business highly profitable. In 2023, Qingdao Port became the third largest container port in China, and we are optimistic about its future growth space.

Liquid bulk cargo business: The development of the petrochemical industry and high utilization rate support steady growth in the liquid bulk throughput of Qingdao Port. Shandong is an important crude oil import and processing site in China. In 2023, Shandong accounts for 17% of China's crude oil imports and more than 20% of refining capacity. The terminal utilization rate is higher than that of peers, and the cost is relatively low, so the gross margin is maintained above 50% all year round. With the expansion of facilities such as the crude oil terminal and pipelines at Qingdao Port, the port hinterland is expected to be further extended.

Backed by Shandong Port Group, the leading port for integrated and collaborative development

Shandong Province approved the establishment of the Shandong Port Group in 2019 and integrated the four major port groups of Qingdao Port, Rizhao Port, Yantai Port, and Bohai Bay Port. The effects of Shandong port integration are beginning to show. In July 2024, Qingdao Port announced that it will inject the existing high-quality oil terminal assets of Rizhao Port Group and Yantai Port Group into the company. Qingdao Port will integrate high-quality oil terminals in Shandong Province to promote the main business. Under the integrated collaborative development pattern of Shandong ports “with Qingdao Port as the lead, Rizhao Port and Yantai Port as the two wings, Bohai Bay Port as the extension, various sector groups as support, and many inland ports as the foundation”, Qingdao Port will continue to benefit from the new pattern of collaborative development.

Jiaozhou Bay is at the right time: the dividend asset provides a value foundation. Qingdao Port has comprehensive software and hardware conditions, and throughput has achieved steady growth over the years. The company has maintained a leading return on net assets in the industry and maintained a high percentage of cash dividends. Looking forward to the future, the liquid bulk business will continue to contribute stable profits; and thanks to continuous cultivation over the past few years, Qingdao Port became the third largest container port in China in 2023, contributing to profit growth. We continue to be optimistic about the future growth of the company's container business and the long-term stability of liquid bulk goods. At the same time, in the context of port integration, Shandong Port has established an integrated collaborative development pattern with Qingdao Port as the lead, and Qingdao Port will usher in new opportunities. The company's estimated profit from 2024 to 2026 will be 5.47 billion yuan, 5.65 billion yuan, and 6.09 billion yuan, respectively, corresponding PE 10.5 times, 10.2 times, and 9.4 times, respectively.

Risk warning

1) Macroeconomic downturn risk; 2) Hinterland economic fluctuation risk; 3) Industry handling rate adjustment risk; 4) Risk of port consolidation falling short of expectations; 5) Profit assumptions not being true or falling short of expectations.