jinzhou port:Small port with big potential. Initiate with “Neutral”

Jinzhou Port is an energy port located in the northeast region of the Bohai Gulf.

    Coal and oil accounted for 55% of the ports total throughput. Jinzhou Port is rankedNo.20 among 34 domestic ports in terms of throughput. Compared with domestic peer,Jinzhou Port is a small port. While Jinzhou Port is the nearest port to Inner Mongoliacoal mine. With the construction plan of new coal berths, the company has bigpotential.

    Construction of new coal berths. The company will invest in two new coal berthswith CPI (China Power Investment Cooperation) and CRP (China Resource Power).

    The new berths, combined with the railways, will help Jinzhou Port benefit from theexpanding Inner Mongolian coal trade. They will also increase the company’s equityvalue. However, we will not take these factors into consideration when valuing thecompany.

    Possible acquisition by Dalian Port. Jinzhou Port conducted a placement withDalian Port Group at a price of RMB7.77 per share. As the second largestshareholder, Dalian Port Group held an 18.9% stake in Jinzhou Port. Dalian Port mayacquire a greater stake in the future to consolidate the north eastern ports.

    Marine reclamation. Jinzhou Port has reserved the provision of bulwark andwaterway channel dredging to reclaim land covering ~7.5ksq.m.The lease and sale ofthe company’s reclaimed land will increase the company’s earnings in the future.

    We initiate our coverage of Jinzhou Port with a Neutral rating and six-monthtarget price of US$0.54, which is a 25% discount to its DCF-based equity value. Wedo not take the ports new coal berths and marine reclamation into consideration.