Results Review
2019 results in line with our forecast
2019 revenue rose 2.7% YoY to US$1,028mn; net profit attributableto shareholders declined 5% YoY to US$308mn (US$0.1/sh). This is inline with our forecast. Excluding a one-off dilution effect on equityinterest, adjusted net profit rose 2% to US$331mn. HKFRS 16 rulesregarding leases reduced the company’s earnings by US$20mn. In2019, the company’s total throughput rose 5.5% YoY to 123.78mnTEU and equity throughput rose 7% YoY to 29.67mn TEU. Throughputfor the Greater China region rose 3.4% YoY and 19.5% for overseas.
Trends to watch
Throughput for January and February fell 6.3% YoY, mainly due toChina’s measures taken to contain the COVID19 outbreak. Afterresumption of work in China, throughput decline narrowed in earlyMarch. However, the virus’ outbreak overseas may weigh oninternational trade demand. Management guided the COVID19outbreak could reduce full-year throughput volume by 3–5%. Thecompany has strong cash flow: EBITDA for 2019 was US$670mn, up2.6% YoY. Management plans to continue to execute the strategy ofdivesting non-performing assets for capital recycling: according to itsannouncement, an after-tax disposal gain from Yangzhou andZhangjiagang of US$61mn should be recognized in 2020. Thecompany also intends to sell its interests in Taicang Terminal andJiangsu Petrochemical Terminal. Given its strong cash position(US$957mn cash on hand at end-2019 and US$251mn received inFebruary from the Yangzhou and Zhangjiagang disposals) and healthyfinancial leverage (net debt-to-equity ratio was 34% in 2019),management committed to maintain a 40% payout ratio as dividendpolicy.
Financials and valuation
We lower our 2020 earnings forecasts 9% to US$324mn (13% forrecurring earnings to US$263mn), to reflect the impact from theCOVID19 outbreak. We introduce a 2021 earnings forecast atUS$290mn. The stock is trading at 4.7x 2020 and 5.2x 2021 P/E.Maintain OUTPERFORM on attractive valuation and dividend yield(8.8% for 2020 and 7.9% for 2021, based on a 41% payout ratio) butlower our TP 32.5% to HK$4.79 (6.0x 2020 P/E and 6.7x 2021 P/E),offering 28.4% upside, to reflect lower earnings estimates and areduced risk appetite.
Risks
Larger than expected decline in throughput or tariff.