The largest foreign trade port in the North, with steady growth in performance and continuous dividends

Qingdao Port is the largest foreign trade port in northern China owned by Shandong. It specializes in handling and supporting services for containers, metal ore, coal, crude oil, etc. It leads the industry in throughput growth, and its comprehensive strength is world-class. In 2014-2023, Qingdao Port's operating income and net profit to mother grew rapidly, mainly due to continued growth in cargo throughput. Profitability is strong. In 2023, Qingdao Port's ROE and ROA were 13% and 9.4% respectively, ranking first among A-share listed ports. Qingdao Port has abundant cash flow and maintains a high dividend ratio all year round.

Internal and external repairs are complete, and throughput is expected to grow at a high rate

The recovery in foreign trade has led to an increase in container throughput. The growth rate of cargo and container throughput in Qingdao is related to the inventory cycle, and there is a slight lag. Industrial transfers have brought about cargo type adjustments, providing resilience to the high growth rate of container throughput at Qingdao Port. Actively expand routes and build new dry ports to continue to add new momentum to the container business.

High-quality projects have been launched and put into operation one after another, and an increase in liquid bulk production capacity at Qingdao Port can be expected after it is released. The target of the acquisition focuses on the liquid bulk business, and there is room for imagination for large-scale expansion.

Rates are expected to rise, leading to an increase in profitability

Since 2015, port rates have been market-based. Port consolidation can help reduce repeated investment, ease competition for low prices, and drive up tariffs. The handling efficiency of Qingdao Port is high but the fee level is low. Compared with overseas ports, there is room for rate improvement. Throughput growth is rising, and rates are expected to rise periodically. Qingdao Port has a high ROE and ROIC, and a low leverage ratio. If Qingdao Port is properly leveraged in the future, ROE will increase further, which is expected to drive up valuation. Container throughput is growing rapidly, projects under construction are declining, capacity utilization is increasing, increasing turnover, and increasing ROE.

Profit forecast and target price

Profitability is expected to increase substantially in 2025. As the impact of the epidemic subsides and foreign trade recovers, the container business at Qingdao Port is expected to rise sharply in volume and price in 2025, and profits may increase dramatically. We expect the net profit of Qingdao Port to be 51.2 billion yuan, 57.6 billion yuan and 5.95 billion yuan in 2024-2026, respectively. The comprehensive equity FCFE valuation method and the comparable company Wind agreed with the 2024 average PE, giving Qingdao Port a target price of 12.67 yuan, which was covered for the first time and gave it a “buy” rating.

Risk warning: The risk of macroeconomic fluctuations, the risk of dependence on the economic development of the regional hinterland, the risk of port rate adjustment, the risk of port integration. The calculation results are subjective.