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China Ports
Raise Industry View to
In-Line; Watch for Recovery
Investment conclusion: As volume declines appear to
have stabilized, we see much lower probability that our
previous bear case scenarios will materialize. Therefore,
we raise our price targets for CMHI to HK$26.8 and CPL
to HK$9.7 to factor in less downside risk implied in our
bear case assumptions. We reiterate OW rating on
CMHI as we believe the stock is still undervalued and
our earnings are 20-27% above consensus estimates
for 2010-11E. We raise industry view on China
Transportation to In-Line from Cautious.
Watching for turning point: While we maintain our full
year estimate of -6% volume growth in 2009, we expect
a considerable sequential improvement in 2H09. Some
key indicators to watch for: 1) US/European
consumption and employment; 2) the trend in PMI; 3) air
cargo demand; 4) shipping rate recovery; and 5) coastal
power consumption.
Which areas are likely to rebound the most? We
expect the areas that were hit the most (e.g., Shenzhen,
Shanghai) by the recession will rebound more than the
northern ports (e.g., Dalian, Qingdao), which were more
protected due to less direct exposure to the US and
European routes. Moreover, the large amount of empty
boxes attracted and stored at major port areas should
add impetus to a potential volume rebound when overall
demand improves.
Sustainable LT growth: Looking into the future, while
we concur with our economist’s view that the hyper
growth period of China’s exports may not repeat, we
expect port volume growth to be underpinned by
sustained global outsourcing, which has proven to be
the most efficient so far in global resources allocation.
Furthermore, a likely boom in China’s domestic
consumption could stimulate import demand.
Risks to our call: 1) Prolonged depression in external
demand owing to the financial crisis, and 2) exogenous
risks.
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