Shanghai International Port (Group):We expect H116profit to fall 8%YoY but remain cautiously positive on small full-year profit growth
H116 earnings forecast: Profit to fall 8% YoY
We expect H116 net profit excluding one-offs (adjusted by UBS-S) to decrease 8% YoY,mainly due to weak container volume growth (-1% YoY), a sluggish bulk cargosegment (-9% YoY) and a smaller-than-expected value-added tax (VAT) refund. Whilewe believe performance in Q216 was much better than in Q116, with net profitexcluding one-offs flat YoY, we still expect some decrease in H116 earnings, as Q116net profit excluding one-offs fell 20% YoY.
Q2 container throughput normalised; July container volume may beat
As January container throughput decreased 7% YoY, H116 container volume was 1%lower than in Q115. However, the company's container throughput has graduallyreturned to normal since January, up 0.3-2.2% in February-April and June (down 2% inMay). We expect H216 container volume to continue increasing 1-2% YoY, with fullyear2016 container throughput likely to increase 0.3%. Our channel survey showedgood container throughput at all major berths of the Shanghai port in July, and wethink the company's July container volume is likely to beat market expectations.
Changing EPS estimates; still positive on diversified businesses
We are lowering our 2016-18 EPS (excluding one-offs) 2-3%, from Rmb0.27/0.30/0.33to Rmb0.27/0.29/0.32, as: 1) we are cutting our 2016E container throughput growthto 0.3% from 1.3% (but we maintain our 2017-18E container volume growth); and 2)we are trimming our 2016-18E immediate VAT refunds to Rmb350m from Rmb600-700m. We remain positive on the synergies created by the company's diversified (e.g.banking and real estate) and core businesses, along with their associated profit. Weexpect moderate profit growth in 2016 and faster profit growth in 2017-18.
Valuation: Raising price target to Rmb5.40; maintain Neutral
We are lifting our SOTP-based price target to Rmb5.40 (from Rmb5.30) to reflect: 1)2016-18E EPS dropping 2-3%; and 2) the valuation basis of some segments rolling overto 2017E. Compared with port operators listed in the A-share/foreign markets, wethink the company's valuation is reasonable. Therefore, we maintain our Neutral rating.