1H19 results lower than our forecast
1H19 revenue rose 4.5% YoY to US$518mn; net profit attributable toshareholders declined 12.5% YoY to US$147.8mn （US$0.05/sh），negatively impacted by one-off items （US$6mn impact due to KHFRSlease and US$22.55mn due to one off dilution effect on equityinterests in QPI）。 Excluding these one-off items, adjusted net profitreported rose 4.4% YoY to US$176.4mn.
This remains slightly lower than our forecast due to slower volumegrowth: total throughput for the company rose 5.4% YoY and equitythroughput rose 7.7% YoY （vs. 22.3% YoY in 1H18）。 Interim dividendwas proposed at 1.9 US cents per share, maintaining a 40% payoutratio.
Trends to watch
The company changed its guidance from total throughput （previouslyexpecting low double-digit growth for 2019） to equity throughput（now expecting high single-digit growth for 2019）， to be morerevenue-related and to reflect uncertainties around China-US traderelations. Management expects to see higher growth and increasingcontributions from controlled subsidiaries compared withnon-subsidiaries. The company will also adopt industry-leadingsystems （Navis N4） to improving operating efficiency and expand intoterminal-related logistics businesses （such as warehousing）。 Thecompany aims to maintain its ROE on an upward trend in the longterm by optimizing asset returns to enhance profitability, so wesuggest watching for potential benefits from the disposal ofnon-performing assets.
Financials and valuation
We lower our 2019 earnings forecast 15% from US$354mn toUS$203mn to reflect one-off items and slower volume guidance, andlower our 2020 earnings forecast 7% from US$383mn to US$354mn.
The stock is trading at 9.1x 2019 and 7.7x 2020 P/E, with an expecteddividend yield of 4.4% and 5.2% in 2019 and 2020. We maintainOUTPERFORM based on valuation but lower our TP 11.4% toHK$8.76 to reflect the earnings revisions （11.8x 2019 P/E and 10.0x2020 P/E）， offering 29.6% upside.
Risks
Throughput growth slower than expected.