20160531-大和证券-China_Merchants_Holding_international_13页_1mb_1mb

China Merchants Holding International (144 HK) Summary

Core Content

China Merchants Holding International (CMHI) is a port operator with a significant presence in China and overseas. The report highlights a downgrade from "Buy (1)" to "Underperform (4)" due to several factors, including weak organic growth, lack of share-price catalysts, and unattractive valuations. The target price has been revised from HKD26.40 to HKD20, reflecting the reduced growth expectations.

Main Points

1. Share Price and Target Price

• Current Share Price (31 May): HKD22.20
• Downside: -9.9% from the target price
• Target Price (revised): HKD20.00
• Rating: Downgraded to Underperform (4) from Buy (1)

2. Growth Outlook

• Throughput Growth (2016-18E): Expected to be weak, with 3% YoY growth (excluding Dalian) for 2016-17E, down from previous estimates of 4-6% YoY.
• ASP Growth: Flat YoY or less than 1% for 2016-17E, compared to previous growth of 1% YoY.
• 2016E Net Profit Growth: 12.5% YoY, driven by new ports (Dalian and Kumport) and overseas projects.
• 2017E Net Profit Growth: Expected to be 1.8% YoY, with a weaker outlook for 2017-18E.
• Overseas Growth: Stronger growth in overseas ports (20% of total throughput) with Colombo and Lomé expected to grow by 20-60% YoY in 2016.
• CIMC Impact: Weak performance from the associate China International Marine Company (CIMC), with a 20% YoY decline in net profit contribution for 2016.

3. Valuation

• 2016-17E PER: 13-14x, considered unattractive compared to historical averages and growth expectations.
• Forward PER: Below the past 3-year average of 15x, but growth is expected to be weaker than previous years (15-18% YoY net profit growth vs. 2-13% YoY).
• EV/EBITDA: 15.2x for 2016E, dropping to 10.0x for 2018E.
• PBR: 1.0x for 2016E, 0.9x for 2017E, and 0.9x for 2018E.

4. Earnings Revisions

• 2016-17E EPS: Revised down by 9-15% compared to previous forecasts.
• Daiwa vs Consensus: Daiwa's 2016-17E EPS are 7-12% lower than the Bloomberg consensus.
• 2016E EPS (adjusted): HKD1.620, up by 12.5% YoY.
• 2017E EPS (adjusted): HKD1.649, up by 1.8% YoY.
• 2018E EPS (adjusted): HKD1.702, up by 3.2% YoY.

5. Financial Summary (2016E-2018E)

6. Key Risks

• Throughput and ASP: Lower-than-expected throughput and flat ASP could impact earnings.
• CIMC Performance: Continued weakness in CIMC's profitability could drag down CMHI's results.
• Currency Deprecation: Further depreciation of the CNY against the USD could hurt net profit and investor sentiment.

7. Company Profile

• Port Portfolio: Operates in China (from Tianjin to Zhanjiang), with key stakes in Shanghai International Port Group (24.5%) and Mega SCT (85.4%).
• Overseas Ports: Holds 49% in Terminal Link, 29% in Lagos Port, 26% in Kumport, and 23.5% in Djibouti Port.

8. YTD Throughput Growth

• April 2016 YTD: 6% YoY, driven by Dalian and Kumport.
• Excluding Dalian and Kumport: 2% YoY decline, indicating structural slowdown in China's ports industry.
• Shenzhen and SIPG: Throughput declined by 2% and 1% YoY, respectively.

9. CIMC Performance

• 1Q16 Net Profit: 410 million CNY, down by 20% YoY.
• Container Manufacturing Revenue: Down by 67% YoY.
• Dry Containers Sales Volume: Down by 78% YoY to 79,800 TEUs.
• CIMC's Net Profit Contribution to CMHI: Expected to decline by 20% YoY in 2016.

10. Currency Impact

• CNY Depreciation: Expected to reach CNY7.5 against USD by end of 2016, leading to a 15% depreciation.
• 2015 Forex Loss: HKD333 million due to CNY depreciation.
• Impact on CMHI: Likely to reduce net profit and negatively affect investor sentiment.

Conclusion

CMHI is currently in a phase of slow net-profit growth, with limited catalysts for share price appreciation. While overseas projects and new port acquisitions have driven recent growth, the overall domestic throughput growth is expected to remain weak, and CIMC's performance continues to be a drag. The current valuation is considered unattractive, and the downgrade reflects a more cautious outlook on future earnings. Key risks include weaker-than-expected throughput, flat ASP growth, and further CNY depreciation.