WASHINGTON: COSCO Shipping Ports (1199.HK) – a subsidiary of Chinese shipping giant COSCO Group – could be squeezed by structural changes in the global ports industry. Morgan Stanley analyst Qianlei Fan expects the changes to exert the greatest pressure on operators with 1) greater exposure to transshipment volumes, 2) weaker hinterland support, and 3) less advanced infrastructure. In China, ports with higher exposure to domestic trade are expected to underperform those with higher exposure to foreign change. While Fan has a positive outlook for Chinese exports, she isn’t too upbeat about COSCO Shipping Ports’ prospects given the tidal patterns in the ports industry: We expect CSPL’s traffic and profit growth to be stagnant, especially since its acquisition of some less competitive port assets from China Shipping Ports Development.
The analyst has reduced her target price on the stock to HKD8.47 a share from HKD9.07 a share after lowering her earnings forecasts: We have reduced our 2016-18 recurring earnings forecasts to US$207m, US$217m and US$237m, respectively: Our forecast implies 4.7% YoY recurring profit growth in 2017 and 9.4% in 2018 in US$ terms. We have incorporated YoY organic traffic growth of 1.5% for 2016, 4.4% for 2017, and 5.5% for 2018, with minor margin expansion thanks to operating leverage and effective cost control. Our estimates are 13% to 20% below consensus. At HKD7.82 a share, COSCO Shipping Ports has traded flat this year and fetches 12 times forward earnings.
