20160602-大和证券-中远海运港口-01199.HK-Downgrading__lack_of_rebound_momentum_14页_1mb

COSCO Pacific (CP) Analysis Summary

Core Content

COSCO Pacific (CP) has undergone a series of changes in its financial outlook and valuation due to recent performance and strategic moves. The key points include:

• Earnings Cut: The 2016-17E EPS forecast has been reduced by 14-17% due to weak throughput growth and the impact of the asset swap with Florens and CSPD.
• Rating Downgrade: The rating has been downgraded from Outperform (2) to Hold (3) due to lack of near-term share-price catalysts and slow net-profit growth expectations.
• Valuation: CP's current valuation is considered undemanding compared to its peer China Merchants International (CMHI), with a 2016E PER of 13x versus CMHI's 13x. However, the company's earnings growth is expected to be lower than its historical performance.
• Throughput Trends: While CP recorded a 3% YoY increase in throughput for all its ports in April 2016, the growth was flat when excluding new ports like Kumport and Busan. Key ports such as Shanghai Pudong, COSCO-HIT, Ningbo Yuan Dong, and Suez Canal Container Terminal (SCCT) experienced significant declines.
• Asset Swap Impact: The asset swap with Florens and CSPD led to a reduction in net profit contribution, with Florens' net profit declining by 71% in 1Q16. This suggests that the asset swap may not be a significant share-price catalyst.
• Financial Forecast: The company's financial forecasts show a decline in revenue and net profit for 2016E, with a slight increase in 2017E and 2018E. The core EPS is expected to decline in 2016E but grow slightly in 2017E and 2018E.
• Cash Flow and Balance Sheet: CP's cash flow from operations is expected to decline in 2016E, while net debt to equity increases. The company's current ratio and net interest cover are also affected by the asset swap and operational performance.
• Share Price Performance: CP's share price has been volatile, with a 12-month range of 7.79-11.24. The company's market cap is USD3.01 billion, with a 3m average daily turnover of USD5.36 million.
• Dividend Yield and PBR: The dividend yield is expected to increase slightly, and the PBR is currently at 0.7x, with a slight decline expected in the future.

Main Points

• Earnings Cut and Rating Downgrade: CP's earnings forecast has been cut due to weak throughput and the impact of the asset swap, leading to a downgrade from Outperform to Hold.
• Throughput Decline: Key ports such as Shanghai Pudong, COSCO-HIT, Ningbo Yuan Dong, and SCCT have seen significant throughput declines, affecting profitability.
• Valuation: CP's current valuation is considered undemanding compared to its peer CMHI, but the company's earnings growth is expected to be slower than its historical performance.
• Asset Swap Impact: The asset swap with Florens and CSPD has had a negative impact on CP's net profit, and the company is expected to see a decline in profitability for 2016E.
• Financial Forecast: CP's financial performance is expected to decline in 2016E, with a slight improvement in 2017E and 2018E.
• Cash Flow and Balance Sheet: CP's cash flow from operations is expected to decline in 2016E, while net debt to equity increases. The company's current ratio and net interest cover are also affected by the asset swap and operational performance.
• Share Price Performance: CP's share price has been volatile, with a 12-month range of 7.79-11.24. The company's market cap is USD3.01 billion, with a 3m average daily turnover of USD5.36 million.
• Dividend Yield and PBR: The dividend yield is expected to increase slightly, and the PBR is currently at 0.7x, with a slight decline expected in the future.

Key Information

• EPS Forecast: CP's 2016-17E EPS is expected to decline by 14-17% due to weak throughput and the impact of the asset swap.
• Rating: CP's rating has been downgraded to Hold (3) from Outperform (2).
• Valuation: CP's current valuation is considered undemanding compared to its peer CMHI, with a 2016E PER of 13x.
• Throughput Growth: CP's overall throughput growth is expected to be 2% YoY for 2017-18E, but key ports have seen declines.
• Asset Swap: The asset swap with Florens and CSPD has had a negative impact on CP's net profit, with Florens' net profit declining by 71% in 1Q16.
• Financial Performance: CP's financial performance is expected to decline in 2016E, with a slight improvement in 2017E and 2018E.
• Cash Flow: CP's cash flow from operations is expected to decline in 2016E, while net debt to equity increases.
• Share Price: CP's share price has been volatile, with a 12-month range of 7.79-11.24.
• Dividend Yield: The dividend yield is expected to increase slightly, and the PBR is currently at 0.7x.

Key Risks

• Throughput Growth: Higher or lower-than-expected throughput growth could impact CP's profitability.
• ASPs: Higher or lower average selling prices (ASPs) could also affect the company's financial performance.
• Valuation: CP's valuation could be affected by changes in market conditions and company performance.

Summary

COSCO Pacific (CP) has experienced a decline in its financial performance due to weak throughput growth and the impact of the asset swap with Florens and CSPD. The company's earnings forecast has been cut, and its rating has been downgraded to Hold. CP's valuation is considered undemanding compared to its peer CMHI, but the company's earnings growth is expected to be slower than its historical performance. Key ports have seen significant throughput declines, affecting profitability. The asset swap has had a negative impact on CP's net profit, with Florens' net profit declining by 71% in 1Q16. CP's financial performance is expected to decline in 2016E, with a slight improvement in 2017E and 2018E. The company's cash flow from operations is expected to decline, while net debt to equity increases. CP's share price has been volatile, with a 12-month range of 7.79-11.24. The dividend yield is expected to increase slightly, and the PBR is currently at 0.7x. Key risks include higher or lower-than-expected throughput growth and higher or lower ASPs.