China Merchants Port's （"CMP" or the "Company" ） revenue in 2019 wasdown 12.4% to HK$8,898 mn, below our expectation, mainly draggeddown by depreciation of RMB and the resulting flagging ports revenuecontribution. Due to the decrease in share of profit from associates inYangtze River Delta, CMP's profit from associates and joint ventures droppedby 11.0% YoY. CMP’s profit for shareholders increased by 15.4% toHK$8,362 mn. Excluding one-off gains and fair value gains, the adjustedprofit for shareholders decreased by 3.1% to HK$4,163 mn, slightly below ourexpectation but basically in line with market consensus.
COVID-19 is expected to suppress CMP's throughput beyond 1Q20, butwe are optimistic about CMP's long term throughput growth. Theoutbreak of COVID-19 notably affected CMP's container throughput inGreater China in 1Q20. With China's proactive manufacturing resumption,CMP's throughput showed recovery since April, but is expected to besuppressed by continual impact of global spreading of the COVID-19. On theother hand, CMP has completed the acquisition of equity interests in 8terminals through Terminal Link. We favor CMP's international expansion andbelieve it may become a new driving force for throughput growth.
Reiterate "Accumulate" rating and revise down TP to HK$12.00 to reflectpessimism during the pandemic. Despite the negative effect of COVID-19,the phase one trade agreement between China and the U.S. and thespeed-up of China's "New Infrastructure" may underpin China's imports andexports, and therefore CMP's throughput. The pandemic may only causeshort term disruption which would hardly alter the long term trend of CMP'sgrowing throughput. We think CMP's current valuation is attractive. Our TPrepresents 10.6x/ 9.6x/ 8.8x 2020-2022 PER.