Leading Independent Investment Research, Morningstar, Inc.

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Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

With the aim of encouraging a recovery in foreign trade, the Chinese port sector’s antitrust investigations have concluded with 11%-33% handling tariff cuts on foreign trade cargos for seven major ports from 2018, which will save about CNY 4.5 billion in logistic costs for import and export enterprises, according to the National Development and Reform Commission, or NDRC. While the tariff cuts will pressure these port operators’ profit margins, we expect little impact on the sector’s monopoly…

With the aim of encouraging a recovery in foreign trade, the Chinese port sector’s antitrust investigations have concluded with 11%-33% handling tariff cuts on foreign trade cargos for seven major ports from 2018, which will save about CNY 4.5 billion in logistic costs for import and export enterprises, according to the National Development and Reform Commission, or NDRC. While the tariff cuts will pressure these port operators’ profit margins, we expect little impact on the sector’s monopoly…

The 11%-33% Tariff Cuts on Seven Ports Will Pressure the Sector’s Earnings, but Downside Is Limited

Equity Research Analyst, Maritime sector, Drewry Maritime Financial Research

Ankush Kathuria CFA, FRM

Equity Research Analyst, Maritime sector

Maritime Sector, Equity & Credit Research

Drewry Maritime Financial Research

With no ties to other players in the shipping, finance or banking world, we provide a uniquely impartial view of the markets and companies we cover. Our parent organization, Drewry is a leading independent provider of research services to the maritime and shipping industry, employing over 100 professionals across an international network of offices in London, Delhi, Singapore and Shanghai. Combining our market-leading resources with seasoned sector expertise DFRS offers a highly differentiated and comprehensive range of investment and financial research services to lenders and prospective investors in publicly listed maritime and shipping companies. The full service of reports, supporting resources and sector orientated webinars provides our clients with the most complete picture of the organisations under coverage as is possible. We have been charting and analysing the world’s maritime markets for more than 40 years. This unrivalled intelligence and understanding provides the foundation of our research service. Our analysts have access to one of the most up-to-date, comprehensive and reliable sources of market insight and research data available today. We look at globally listed companies within the following sectors: Port Operators, Container Shipping, Container Manufacturing & Leasing, LNG Shipping, Dry Bulk Shipping and Tanker Shipping. Combine in-depth sector expertise with financial analysis focusing on over 50 stocks globally.

<ul><li>Global throughput strengthened in 2017, with Drewry Maritime Research revising upwards the year-on-year growth from 5.5% to 6.0%. While the pace is likely to moderate, Drewry expects a flow of 775m teu in 2018, representing 4.3% over the projected volume in 2017. Modest port capacity addition is expected to lift utilisation above 70% by 2021.</li><li>The valuation premium of the Drewry Port Index to the MSCI Emerging Markets Index was about 15%-20% for a substantial period in 2017, continuing to trade in the range, while growth investors re-examine the earnings momentum of ports.</li><li>Our high conviction long pick is GLPR on a resurgent Russian economy that benefits the largest port operator directly. On the flip side, our high-conviction short is Santos Brasil. Notwithstanding the macroeconomic upturn, the intense port competition and the piling pressure to expand amid overcapacity are likely to strain Santos Brasil’s balance sheet in FY18e.</li></ul>

Global throughput strengthened in 2017, with Drewry Maritime Research revising upwards the year-on-year growth from 5.5% to 6.0%. While the pace is likely to moderate, Drewry expects a flow of 775m teu in 2018, representing 4.3% over the projected volume in 2017. Modest port capacity addition is expected to lift utilisation above 70% by 2021.The valuation premium of the Drewry Port Index to the MSCI Emerging Markets Index was about 15%-20% for a substantial period in 2017, continuing to trade in the range, while growth investors re-examine the earnings momentum of ports.Our high conviction long pick is GLPR on a resurgent Russian economy that benefits the largest port operator directly. On the flip side, our high-conviction short is Santos Brasil. Notwithstanding the macroeconomic upturn, the intense port competition and the piling pressure to expand amid overcapacity are likely to strain Santos Brasil’s balance sheet in FY18e.

Ports Outlook - Modest Earnings Growth in 2018

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Equity Bottom-Up

We began to turn cautious on container shipping last Summer and became more negative as Summer turned to Fall. Our view was that average freight rates and carrier profitability had improved sharply in the months following <a href="https://www.smartkarma.com/entities/18689" target="_blank" data-smartkarma-citation="entities:18689:1">Hanjin Shipping Co Ltd (117930 KS)</a>'s August 2016 bankruptcy, and that further fundamental improvements would be much harder to come by. About six months after turning cautious on container shipping, we remain negative on the sector, and we believe 2018 will turn out to be worse…

We began to turn cautious on container shipping last Summer and became more negative as Summer turned to Fall. Our view was that average freight rates and carrier profitability had improved sharply in the months following Hanjin Shipping Co Ltd (117930 KS)'s August 2016 bankruptcy, and that further fundamental improvements would be much harder to come by. About six months after turning cautious on container shipping, we remain negative on the sector, and we believe 2018 will turn out to be worse…

Container Shipping Sector: Six Months of Declining Share Prices Explained in Three Charts

Infrastructure Analyst - Ports & Terminals, Drewry Maritime Financial Research

Victor Wai, CFA

Infrastructure Analyst - Ports & Terminals

Hutchison Port Holdings Trust / Equity Bottom-Up

In line with expectations: Hutchison Port Holdings Trust delivered a set of weak results that reflected our thesis for an Unattractive call on the Singapore-listed Trust. PATMI plunged 38.4%y/y to HKD 237.8m (USD 30.5m) on the back of a slight revenue weakness of 3.4% y/y, from HKD 2.96bn (USD 379m) to HKD2.86bn (USD 367m) in 4Q17. We could not find any source of optimism that postulates FY18e to be a turnaround year for the company.NDRC ruling will not crush HPHT: On 1 February 2018, the…

In line with expectations: Hutchison Port Holdings Trust delivered a set of weak results that reflected our thesis for an Unattractive call on the Singapore-listed Trust. PATMI plunged 38.4%y/y to HKD 237.8m (USD 30.5m) on the back of a slight revenue weakness of 3.4% y/y, from HKD 2.96bn (USD 379m) to HKD2.86bn (USD 367m) in 4Q17. We could not find any source of optimism that postulates FY18e to be a turnaround year for the company.NDRC ruling will not crush HPHT: On 1 February 2018, the…

HPH Trust - Upbeat Facade Masks Uncertainties

Transport Sector, China and Asia-focused Research

Charles De Trenck

I really want to get to my <a href="https://www.smartkarma.com/entities/929" target="_blank" data-smartkarma-citation="entities:929:1">Pacific Basin Shipping Ltd (2343 HK)</a> Meeting Notes -- which I will in a few days. But I have more to say first. Dealing with a few family issues has also sucked away time over the last two weeks. Pacific Basin is going to continue performing in 2018, from a low 2016 base. To be sure, the PB Road Back remains a tough slog.What has not been as tough a slog is <a href="https://www.smartkarma.com/entities/6510" target="_blank" data-smartkarma-citation="entities:6510:1">Alcoa Inc (AA US)</a>, which has been on a tear, in 2017 and even more recently. In early December it stood at about…

I really want to get to my Pacific Basin Shipping Ltd (2343 HK) Meeting Notes -- which I will in a few days. But I have more to say first. Dealing with a few family issues has also sucked away time over the last two weeks. Pacific Basin is going to continue performing in 2018, from a low 2016 base. To be sure, the PB Road Back remains a tough slog.What has not been as tough a slog is Alcoa Inc (AA US), which has been on a tear, in 2017 and even more recently. In early December it stood at about…

A Few Stock Picks Up 10-20% in Couple of Weeks…Why Alcoa ….

Hong Kong

Shenzhen International Holdings Limited operates as a holding company. The Company, through its subsidiaries, provides investment, construction, and operation of logistic infrastructure facilities, as well as offers value-added logistic services. Shenzhen International serves customers worldwide.

COSCO Shipping Ports Limited, through its subsidiaries, provides shipping container leasing services worldwide.  The Company also operates container terminals and provides container handling, storage, transportation and management services, as well as depot handling and stevedoring services.

COSCO SHIPPING International (Hong Kong) Co., Ltd. provides shipping related services. The Company offers shipping, logistics, shipbuilding and ship repair services, ship trading agency services, marine insurance brokerage services, marine equipment and spare parts, coating products, and marine fuel and other related shipping products. COSCO International serves clients around the world.

Yuexiu Transport Infrastructure Ltd., through its subsidiaries, invests in, develops, operates, and manages toll highways, expressways, and bridges in China.

Yuexiu Transport Infrastructure (1052 HK)

Tianjin Port Development Holdings Limited operates container terminals in China.  The company provides container handling operations, stacking and warehousing services and non-containerized cargo services.

China Infrastructure & Logistics Group Ltd. provides port operation services. The Company offers port and warehouse leasing, container handling, cargo handling, and other services. China Infrastructure & Logistics Group also provides logistics, supply chain management, property management, and other services.

China Infrastructure & Logistics Group  (1719 HK)

Cathay Pacific Airways Limited operates scheduled airline services. The Company also provides related services, including airline catering, aircraft handling, and engineering.

SITC International Holdings Company Ltd. offers marine shipping services.  The Company offers container liner shipping, freight forwarding, customs clearance, shipping agency, and ship brokerage services.  SITC operates in Asia.

Orient Overseas International Ltd, through its subsidiaries, owns and leases ships, operates terminals, and provides freight forwarding and container transportation services.  The Company also develops and invests in properties, leases equipment, and invests in securities.

Kerry Logistics Network Limited provides logistics services in Asia and internationally. The Company offers integrated logistics services, as well as leases warehousing space in Hong Kong and provides international freight forwarding services.

Auckland International Airport Limited owns and operates the Auckland International Airport.  The Airport includes a single runway, an international terminal and two domestic terminals.  The Airport also has commercial facilities which includes airfreight operations, car rental services, commercial banking center and office buildings.

Qube Holdings Ltd. is a logistics company. The Group operates in divisions covering Automotive, Bulk and General Stevedoring, Landside Logistics and Strategic Development Assets.

Taiwan High Speed Rail Corporation operates the high speed railway system (HSR) in Taiwan, running 345 KM from Taipei to Kaohsiung.

Shandong Hi-speed Co Ltd. operates and maintains toll roads, bridges, tunnels, and other infrastructure facilities.  The Company operates the Jiqing Highway, the Taiqu Road, the Jinan-Huanghe Bridge, the Pingyin Bridge, and the Binzhou Bridge. Shandong Hi-speed also retails petroleum products.

Jiangsu Expressway Company Ltd. constructs, operates, manages and maintains expressways in China.  The Company also provides passenger transportation and other ancillary services along including fueling stations, restaurants, car maintenance and repair and advertising.

Atlas Arteria Limted operates as an infrastructure developer and operator. The Company constructs highways, roads, bridges, and tunnels. Atlas Arteria also collects toll. Atlas Arteria serves clients worldwide.

Qingdao Port International Co., Ltd. engages in providing a wide range of port related services, ranging from basic port services, such as stevedoring and  storage services, to ancillary and extended services such  as logistics service sand financing-related services.

Fraport AG Frankfurt Airport Services Worldwide offers airport services. The Company operates the Frankfurt-Main, the airport in Lima, Peru, and the international terminal in Antalya, Turkey. Fraport also provides services to domestic and international carriers including traffic, facility and terminal management, ground handling, and security.

Flughafen Zuerich AG operates the Zurich Airport.  The Company constructs, leases, and maintains airport structures and equipment.

Kobenhavns Lufthavne A/S (Copenhagen Airports A/S - CPH) owns and operates Kastrup, the international airport in Copenhagen, and Roskilde airport.  The Company provides traffic management, maintenance, and security services, as well as manages the Airport Shopping Center and airport projects.  Kobenhavns Lufthavne also has investments in airports in Mexico, England, and China.

China Merchants Holdings International Company Limited, through its subsidiaries and associated companies, operates container and cargo terminals, port transportation, and airport cargo handling.  The Company also manufactures containers, paint, and trailers as well as operates toll road, shipping, property, and dealing securities businesses.

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China Merchants Port (144 HK)

The 11%-33% Tariff Cuts on Seven Ports Will Pressure the Sector’s Earnings, but Downside Is Limited

With the aim of encouraging a recovery in foreign trade, the Chinese port sector’s antitrust investigations have concluded with 11%-33% handling...

Morningstar, Inc.

Ports Outlook - Modest Earnings Growth in 2018

Global throughput strengthened in 2017, with Drewry Maritime Research revising upwards the year-on-year growth from 5.5% to 6.0%. While the pace...

Drewry Maritime Financial Research

HPH Trust - Upbeat Facade Masks Uncertainties

In line with expectations: Hutchison Port Holdings Trust delivered a set of weak results that reflected our thesis for an Unattractive call on the...

Drewry Maritime Financial Research

A Few Stock Picks Up 10-20% in Couple of Weeks…Why Alcoa ….

I really want to get to my Pacific Basin Shipping Ltd (2343 HK) Meeting Notes -- which I will in a few days. But I have more to say first. Dealing...

Charles De Trenck

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

The 11%-33% Tariff Cuts on Seven Ports Will Pressure the Sector’s Earnings, but Downside Is Limited

With the aim of encouraging a recovery in foreign trade, the Chinese port sector’s antitrust investigations have concluded with 11%-33% handling...

Morningstar, Inc.

Ports Outlook - Modest Earnings Growth in 2018

Global throughput strengthened in 2017, with Drewry Maritime Research revising upwards the year-on-year growth from 5.5% to 6.0%. While the pace...

Drewry Maritime Financial Research

Container Shipping Sector: Six Months of Declining Share Prices Explained in Three Charts

We began to turn cautious on container shipping last Summer and became more negative as Summer turned to Fall. Our view was that average freight...

Daniel Hellberg

HPH Trust - Upbeat Facade Masks Uncertainties

In line with expectations: Hutchison Port Holdings Trust delivered a set of weak results that reflected our thesis for an Unattractive call on the...

Drewry Maritime Financial Research

A Few Stock Picks Up 10-20% in Couple of Weeks…Why Alcoa ….

I really want to get to my Pacific Basin Shipping Ltd (2343 HK) Meeting Notes -- which I will in a few days. But I have more to say first. Dealing...

Charles De Trenck