China ports: Positioning for the US slowdown
China's 1Q2008 container throughput growth looks solid
During 1Q08, China’s top 8 ports’ container throughput growth declined to
17% yoy from 24% in 1Q07, in-line with the decline in China’s 1Q08 export
growth to 21% yoy from 28% in 1Q07. In our view, the 1Q08 throughput
growth looks solid with encouraging yoy growth of Guangzhou, Dalian,
Tianjin, Ningbo & Shenzhen at 16%-35%. The weak growth of Shanghai
and Qingdao at 11%-12% yoy, in our view, could be partially explained by:
(1) snowstorms in China in Feb 08; (2) high utilization. However, we think
Xiamen’s 8% yoy throughput growth in 1Q08 looks disappointing.
Key risk remains to be the US/global economic slowdown
We retain our neutral stance on the China port sector as we continue to
believe that a sharper-than-expected US/global economic slowdown is the
key downside risk to our 2008E container throughput forecasts. In general,
our 2008E throughput growth forecasts are 3%-8% below the companies’
(under our coverage) latest 2008E throughput growth targets.
Avoid expensive stocks & companies with visible operational risks
Our 2008E sector strategy is to avoid expensive port stocks and companies
with visible operational risks. As such, we downgrade Xiamen International
Port (XIP; 3378.HK) to Sell from Neutral (no change to target price and
estimates) as we believe it looks expensive at an 8% premium to our 2009E
NAV, and it has potential operational risks: (1) weaker hinterland, which we
think should result in a weaker throughput growth; (2) higher overcapacity
risk; (3) intensifying market competition in Xiamen.
DP: Attractively-valued; best positioned amidst the US slowdown
Our top pick is Dalian Port (DP, 2880.HK, Buy) as we believe: (1) DP is attractive
at a 22% discount to our 2009E NAV; (2) it is a beneficiary of China’s strong
demand in imported crude oil; (3) 16 new crude oil storage tanks (increasing
storage capacity by an estimated 58% from 06 to 09E) will be important
earnings drivers; (4) there is potential upside risk to our container throughput
growth estimates for DP. We maintain our ratings for Cosco Pacific (1199.HK,
Neutral), China Merchants (0144.HK, Neutral) and Tianjin Port (3382.HK, Buy).
Pair trade: Long DP (Buy) / short XIP (Sell)
For investors wishing to hedge the risk of a sharper-than-expected US/
global slowdown, we recommend a long DP / short XIP pair trade.

Table of contents
Investment stance on HK-listed China ports 2
1Q08 looks solid, but US slowdown remains our key concern 4
Avoid expensive stocks & companies with visible operational risks 8
Disclosures 21