Steady growth in port business, raising target price to HK $14.1
China Merchants Port announced its 2020 results on March 30: 1) operating income rose 0.5 per cent year-on-year to HK $8.9 billion; 2) homing net profit fell 38.4 per cent to HK $5.2 billion, mainly due to 19-year non-recurrent disposal income of HK $4.2 billion; 3) non-homing net profit fell 0.1 per cent year-on-year to HK $4.2 billion, 13.0 per cent higher than Huatai's forecast. The sound performance is mainly due to the gradual recovery of port throughput in the second half of 20 years. In the context of the continued recovery of the global economy and strong container transport demand, we have raised our 2021 Universe core net profit forecast by 5.6% to HK $4.4 billion / 5 billion in 2022, with a net profit forecast of HK $5.4 billion in 2023. Increase the target price by 35% to HK $14.1 based on 11.7x 2021E PE. Maintain a "buy" rating.
Domestic ports show business resilience during the epidemic
In 2020, the container throughput of China Merchants Port was 120.5 million TEU, an increase of 7.9% over the same period last year. Among them, ports in Greater China (mainland China, Hong Kong and Taiwan) showed strong business resilience during the epidemic crisis, with a total container throughput of 91.7 million TEU, an increase of 0.8 per cent year-on-year. By region, the company's container throughput in the Pearl River Delta and Yangtze River Delta increased by 2.5% and 0.5% year-on-year, while the container throughput around the Bohai Sea fell slightly by 0.5% year-on-year.
Container throughput of overseas ports recorded positive growth
In 2020, the container throughput of China Merchants overseas ports totaled 28.9 million TEU, a strong increase of 38.5% over the same period last year, mainly due to the contribution of the new terminals acquired by Terminal Link SAS in March 2020. On the other hand, the company recorded positive year-on-year growth in terminal throughput in Togo, Brazil and Sri Lanka in 2020 (LCT terminal, 20.5% year-on-year growth, 7.4% year-on-year growth, 1.9% year-on-year growth).
Global trade and port throughput are expected to continue to improve in 2021
In 2020, the port business of China Merchants Port recorded a recurrent EBIT of HK $2.4 billion, down 27.0% from the same period last year. Of this total, associated companies and joint ventures recorded profits of 3.6 billion Hong Kong dollars, down 10.2 percent from the same period last year.
The decline in profits is mainly due to the waiver of related charges by some ports in order to reduce enterprise logistics costs in the first half of 2020. As the global economy resumes, we expect global trade and port throughput to continue to improve in 2021. Our target price of HK $14.1 is based on HK $11.7 x 2021E EPS (the average PE over the three years of the company's history is 6.5x plus 3 standard deviations, the valuation premium is mainly due to the fact that the company's newly acquired overseas projects in 2020 have higher profit growth potential than domestic ports, HK $2021E EPS 1.21; the previous target price is HK $10.5, based on the average forecast EPS of 9.6 x 2020-2021).
Risk tips: 1) the duration of the COVID-19 epidemic is longer than expected; 2) the growth of port throughput is lower than expected; 3) the return on investment in overseas projects is lower than expected; 4) geopolitical risk.