The Chinese government may tighten the policy on port construction, yet the pace of Dalian Port's development may continue. FY11 CapEx is expected to be approximately RMB2.7 billion, while FY12 and FY13 CapEx are expected to soften to RMB2.0 billion and RMB1.1 billion, respectively.
Two crude oil tanks caught fire on 22 November. This fire may slightly affect Dalian Port?s oil terminal operations. Revise down the FY11-FY12 oil terminal throughput assumptions correspondingly.
Lower than expected FY11 operation volume due to the slowdown of China imports and exports. Revise down the Company?s annual handling assumptions in accordance with the softer cargo volume and demand for iron ores. Thus, its FY11 revenue is expected to be lower than previous estimates.
Capital restructuring and debt optimization. Dalian Port issued an aggregate amount of RMB5.4 billion medium-term notes in FY11 to fund its internal terminal constructions and equity investment projects, as well as debt repayment. FY11-FY13 finance costs are expected to increase accordingly.
Revise down FY11-FY13 earnings forecasts. Revise down the FY11-FY13 earnings estimates by 10.4%, 20.7% and 26.3% to RMB706.4 million, RMB719.3 million and RMB786.5 million, respectively.
Revise down TP by 38.6% to HK$2.15 on lower FY11 NAV, maintain 'Neutral'. We remain conservative about upside in share price in the absence of catalysts. Our TP represents 10.8x FY11 PER or 0.6x FY11 P/B.