Incident: On July 13, 2024, 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. On September 27, 2024, the company announced that this major restructuring plan has been accepted by the Shanghai Stock Exchange, and that the draft was updated based on the implemented 2023 profit distribution plan and the completed approval procedures. 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 issue shares to purchase Yantai Port Group.

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:

The restructuring plan is progressing in an orderly manner. According to the updated draft on September 27, the restructuring plan has been reviewed and approved by the shareholders' meeting of listed companies and approved by Shandong Port Group, an authorized agency of the state-owned assets supervision and administration department. The approval procedures that still need to be carried out are: the Shanghai Stock Exchange has reviewed and approved it, and the China Securities Regulatory Commission has made a decision to register it.

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, the company expects EPS to increase by 5.20% from 0.76 yuan/share to 0.80 yuan/share in 2023, and increase EPS 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, we expect that the relevant additional share capital will have a low impact on EPS dilution, and this transaction will increase the company's EPS.

As Shandong port integration progresses, the province will speed up asset rectification, and there are no other acquisition plans in the future. Without considering the impact of raising supporting capital, after the transaction was completed, Shandong Port Group held 50.15% and 10.08% of the company's shares through Qingdao Port Group and Yantai Port Group respectively, totaling 60.23% of the company's shares, an increase of 4.46 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. We expect the company to achieve operating income of 19.011, 19.894, and 20.69 billion yuan from 2024 to 2026, up 4.61%, 4.64%, 4.01% year on year, and achieve net profit of 5.184, 5.591, and 6.021 billion yuan, up 5.30%, 7.83%, and 7.69% year on year, corresponding EPS of 0.80, 0.86, 0.93 yuan, corresponding to the closing price of September 27, 2024 PE was 10.83, 10.04, 9.33 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.