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DALIAN PORT(02880.HK):DECLINING PROFITABILITY MAINTAIN “NEUTRAL”
DALIAN PORT(02880.HK):DECLINING PROFITABILITY MAINTAIN “NEUTRAL”

国泰君安国际 ·  {{timeTz}}

Excluding the impact of the trading business, revenue increased by 0.7% yoyin 1-3Q2015. Such increase was mainly due to the increase in the incomefrom oil handling business resulting from the increase in throughput. However,the growth in revenue was offset by the reduction of the bulk grain and orethroughput, which also affected the gross margin. Gross margin decreased by3.0 ppts to 16.6% during the period. Net profit decreased by 11.3% yoy toRMB371 million in 1-3Q2015. Performance of the Company’s oil terminals is expected to be solid in 2015and 2016. On the other hand, ore terminals and bulk grain terminals willremain sluggish; throughput of container terminals will see low growth rate.Overall, we slightly revise FY15-FY17 revenue estimates and revisedown the profit estimates by 15.8%, 24.0% and 25.1% in FY15-FY17 toreflect the weak grain and ore terminal performance. The intended issue of new H-shares will dilute EPS of the Company byapproximately 20%. After revising down the earnings estimates, we believethe current valuation of the Company is overvalued at this moment. However,current price of the Company’s H-shares represented a 67% discount to itsA-shares and we think the H-shares’ price will be supported to some extent.Therefore, we maintain the investment rating of ‘Neutral’. However, werevise down TP to HK$2.50 to reflect the revise down of earningsestimates. The updated TP represents 22.6x, 24.0x and 22.5x FY15-FY17PER, or 0.7x FY15 P/B ratio.

Excluding the impact of the trading business, revenue increased by 0.7% yoyin 1-3Q2015. Such increase was mainly due to the increase in the incomefrom oil handling business resulting from the increase in throughput. However,the growth in revenue was offset by the reduction of the bulk grain and orethroughput, which also affected the gross margin. Gross margin decreased by3.0 ppts to 16.6% during the period. Net profit decreased by 11.3% yoy toRMB371 million in 1-3Q2015. Performance of the Company’s oil terminals is expected to be solid in 2015and 2016. On the other hand, ore terminals and bulk grain terminals willremain sluggish; throughput of container terminals will see low growth rate.Overall, we slightly revise FY15-FY17 revenue estimates and revisedown the profit estimates by 15.8%, 24.0% and 25.1% in FY15-FY17 toreflect the weak grain and ore terminal performance. The intended issue of new H-shares will dilute EPS of the Company byapproximately 20%. After revising down the earnings estimates, we believethe current valuation of the Company is overvalued at this moment. However,current price of the Company’s H-shares represented a 67% discount to itsA-shares and we think the H-shares’ price will be supported to some extent.Therefore, we maintain the investment rating of ‘Neutral’. However, werevise down TP to HK$2.50 to reflect the revise down of earningsestimates. The updated TP represents 22.6x, 24.0x and 22.5x FY15-FY17PER, or 0.7x FY15 P/B ratio.

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