Volume growth trailed behind regional throughput growth in Xiamen port zone. Among the ports in Xiamen port area, the Company’s growth trailed behind other ports in both container and dry bulk cargo handling business segments. We think the shortfall in volume growth between the Company and Xiamen port zone as a whole could be due to intense regional competition, in which part of the growth may be diverted to other ports in the area.
Given the slowdown of China export and trailed growth rate of the Company, we cut our FY11 and FY12 volume growth assumptions. Considering the increasing employee benefit expenses, distribution costs and operating lease expenses, we believe the EBIT margin is expected to fall.
Revise down our FY11-FY13 EPS forecasts by 0.8%, 7.4% and 14.7% to RMB0.117, RMB0.114 and RMB0.115, respectively, based on the intense competition in Xiamen port zone, slowdown of China export trade, and lower volume assumptions. In addition, we think the Company’s dividend payout ratio is expected to fall.
DCF derived FY11 NAV forecast down to HK$1.7. Revise down TP by 33.3% to HK$1.20, downgrade to ‘Neutral’ on lower FY11-FY13 estimates and dividend payout ratio. We think the intense regional competition remains a downside risk to the Company’s earnings. Our TP represents 8.4x FY11 PER or 0.7x FY11 P/B, implying 30.3% discount to our FY11 NAV.