We had a conference call interview with the management today. According to the management, container growth of the XIPC is expected to record a mid-low single digit growth in FY12. Average tariff of the Company is expected to be flat comparing with that in FY11. Business from manufacturing and selling of building materials are expected to stable in FY12. The strategy of XIPC's trading business of merchandise is to encourage the stable growth of the port throughput of XIPC to achieve synergies within the Company.
Change volume assumptions and introduce FY14 volume forecasts. We change our FY12-FY13 throughput and volume assumptions of XIPC to reflect our concerns about the volume drop due to the escalating competence and the slowdown of China export. FY14 throughput is expected to grow by 5.0% YoY, while dry bulk cargo volume to grow by 1.9% YoY.
Revise down FY12-FY13 earnings and introduce FY14 forecasts. We introduce FY14 revenue of XIPC with RMB3,243 million. Revise down FY12-FY13 earnings to RMB230 million and RMB240 million. The Company's FY14 earnings are expected to be RMB267 million.
Maintain 'Neutral' with TP of HK$1.20. Although the operations of the Company are smooth and stable, we are concerned about the escalating competition pressure from COSCO Pacific (01199 HK) and other local small scale dry bulk ports. Adding the slowdown of China exports in FY12, we remain conservative about the earnings growth of the Company. Our TP represents 11.4x, 10.9x and 9.8x FY12-FY14 PER and 0.6x FY12 P/B ratio. Major risk is the increasing regional competition that may put pressures on both tariff and throughput growth.