3Q19 results in line with our forecast
　　3Q19 revenue rose 0.7% YoY to US$254.7mn; net profit attributableto shareholders declined 4.4% YoY to US$71.8mn (US$0.02/sh). Thisis in line with our forecasts. According to the company, excluding theloss related to HKFRS 16 of US$9.1mn, adjusted net profit for 3Q19was US$80.9mn, up 7.8% YoY. Total throughput for the company’sterminals rose 5.2% YoY in 3Q19; equity throughput grew 7.8% YoY, inwhich growth for subsidiaries was 14.8% and that fornon-subsidiaries 3.5%.
　　Trends to watch
　　Management maintains previous guidance from interim report:
　　Equity throughput growth to be in high single digits for full-year 2019(for 1–3Q19, it was 8% YoY). To improve operating efficiency, thecompany plans to continue adopting industry-leading systems (NavisN4) in all of its subsidiaries in the coming 3–4 years, followingZeebrugge Terminal (launched in July 2019) and Lianyungang(expected in 2H19).
　　Watch for asset disposal. The company announced disposal ofinterests in Nanjing Longtan Terminal, Yangzhou Yuanyang Terminal,and Zhangjiagang Terminal for an aggregated consideration ofRmb1,064mn. The combined net profit contribution of these threeterminals was Rmb40mn in 2018 (only 2% of the company’s netprofit). According to an announcement, the net gain of the deal isexpected to be US$75.9mn (to be booked in 2019’s P&L). Thecompany also intends to dispose of its interests in Taicang Terminaland Jiangsu Petrochemical Terminal. We see this as a good chancefor the company to divest non-performing assets and furtherimprove its already robust financial condition (at the end of 3Q19,the company’s net debt to equity ratio was only 31%).
　　Financials and valuation
　　We maintain our 2019 and 2020 earnings forecasts at US$302mn(disposal gain not included yet) and US$354mn. Dividend yield isexpected to reach 4.8%/5.6% in 2019e/2020e, based on a 40%payout ratio. The stock is trading at 8.4x 2019 and 7.1x 2020 P/E. Wemaintain OUTPERFORM and our TP of HK$8.76 (11.8x 2019 P/E and10.0x 2020 P/E), offering 40.6% upside.
　　Risks
　　Lower-than-expected throughput growth.