COSCO SHIPPING Ports Ltd (CSP, 1199 HK) is among the largest port operators in China, with a portfolio of terminals that covers the five main port regions in Mainland China, Southeast Asia, Middle East, Europe and the Mediterranean. CSP operated and managed 269 berths at 35 ports worldwide, of which 179 were for containers, with a total annual handling capacity of approximately 103 million TEU. Formerly known as COSCO Pacific Limited, COSCO SHIPPING Ports completed its restructuring in March 2016 into a pure terminals operator. The restructuring involved the acquisition of China Shipping Ports Development Co., Ltd and the disposal of Florens Container Holdings Ltd, which was the container leasing, management and sale business.

COSCO SHIPPING Ports’s largest shareholder is COSCO SHIPPING Holdings (1919 HK), whose parent company is China COSCO SHIPPING Corporation (COSCO SHIPPING). COSCO SHIPPING Holdings is a member of Ocean Alliance, together with Evergreen Line, CMA CGM, and OOCL.

In our view, CSP, being a pure-play port operator has much to benefit as it will enjoy complementary advantages from its parent’s large shipping fleet size and relationship with the Ocean Alliance partners, potentially driving its throughput growth ahead.

Investment summary

CSP reported a solid and in-line set of results, with PATMI increasing 11.8% YoY to US$75.1m. This was on the back of strong revenue growth of +62.6% YoY to US$253.0m and a flat share of profits from JVs and associates (-0.8% YoY to S$69.4m). In terms of organic growth (excluding new acquisitions or projects under construction), revenue increased +11.8% YoY to US$174.0m while PATMI increased +9.1% YoY to US$74.0m. On a 9M basis, core PATMI jumped 46.6% YoY to US$244.1m, making up 76% of our earlier full-year forecast.

Operational fundamentals remained robust with total equity throughput increasing 11.4% YoY to 9.6m TEU, which was contributed by

1) +30.8% growth from subsidiaries, and

2) +2.1% growth from noncontrolling terminals.

Similarly, terminal profits from subsidiaries increased 25.4% YoY while nonsubsidiaries dropped 0.8% YoY. Geographically, growth in equity throughput was driven by a >50% increase from overseas ports, partly a result of the Noatum acquisition. We saw positive equity throughput growth at Bohai Rim (+2%), Yangtze Rim (+4%), and Southeast Coast & Others (+6%). On an organic basis, excluding Noatum Port Holdings and Nantong Tonghai Terminal, total equity throughput increased +5.8% to 9.1m TEU.

We are positive on CSP’s volume support from the OCEAN Alliance and its parent company. Including COSCO SHIPPING’s share, the OCEAN Alliance contributed 39.3% of the group’s subsidiaries’ throughput. CSP has not seen any signs of rush orders recently, which is to be expected given that its terminals have little exposure to US-China routes. Management is “cautiously optimistic”, and is confident to achieve low double-digit growth for throughput as a whole.

We expect equity throughput growth to be positive in the coming months, driven mainly by the group’s subsidiaries.

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