Thursday, August 9, 2012

>CONGLOMERATES: Container port volume at top 8 ports decelerated to 3% yoy in July

Port volume growth slowdown dragged by international trades According to, throughput growth at China’s top eight container ports decelerated to 3% yoy in July from 7% yoy in 1H12, driven by weaker international trade which fell 1% yoy (vs. +5% in 1H12). Domestic trade maintained its momentum, up 18% yoy (vs. +21% in 1H12). Reflecting their greater international trade exposure, Yangtze River (YRD) and Pearl River Delta (PRD) regions reported 1% and 2% port throughput decline in July, while Bohai Rim region’s volume held up at 16 % yoy. We continue to observe divergent performance among the ports within the PRD region, with Guangzhou Port losing its strong momentum since mid 2011, reporting 6% yoy volume decline in July (vs. +8% in 1H12). COSCO Pacific, which holds 39% interest in Guangzhou Nansha Phase 2, attributes this to its refocus on higher-yielding international boxes, since Nansha Phase 2’s utilization already exceeds 90%. As a result, some domestic cargos might have gone over to Shekou which reported 20% yoy volume recovery last month. Overall, both East and West Shenzhen reported 1% yoy port throughput growth in July (vs. 2% in 1H12).

Lackluster port volume in 2H. Earnings risk from China Merchants
As discussed previously (“Focus on earnings quality and prefer those with visible catalysts”, July 31, 2012), both leading indicators we monitor (China industrial power consumption and Canton Fair Trade orders) suggested lackluster container port volume growth in 2H12. At the post-result investor meetings, HPHT said that China’s international trade growth could have been weaker than the reported 5% yoy in 2Q, without the boost of factory orders for the London Olympic Games. Given the macro uncertainties and retailers’ cautious stance, we do not expect significant volume pickup in the upcoming peak season. Though not conclusive at this point in time, our recent discussion with SIPG indicated that its port volume in the first week
of Aug averaged 90,000 TEU per day, comparable with 92,000 TEU in July.

We prefer HPHT and COSCO Pacific over China Merchants (144.HK; Neutral), for which we flag earnings risk in its interim results. Excluding container manufacturing and exceptional items, we forecast 4% port earnings decline in 1H12, dragged by 15% less contribution from SIPG affected by a 2-month delay in VAT by the gov’t and 12% yoy port volume decline in MTL HK. Our 2012-13E earnings estimates for China Merchants are 17%-19% below Bloomberg consensus.