In view of the anticipated improvement in the demand/supply scenario
of China’s port industry, we advise investors to turn more positive on it.
We raise our DCF-based target prices for different stocks by moving
the valuation base to 2010 and applying normal-case valuations. We
expect sequential demand improvement to be the key catalyst.
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We are turning more positive on China’s container port volume growth,
as we see more signs of stabilisation/improvement. These include
leading indicators bottoming and a reduction in the rate of YoY volume
decline at during May. Furthermore, we expect government’s
supporting policies toward exporters to help the country gain market
share. We thus raise our 2009 and 2010 container volume growth
forecasts to -7.9% and 11.3% from -13.8% and 9.6%, respectively.
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Capacity growth is expected to outpace demand for Chinese ports in
2009, given extremely poor global demand. Nevertheless, we expect
utilisation at most Chinese ports to start rising in 2010 after the trough
in 2009, as demand should start to recover and expansion should be
disciplined. Pricing pressure should ease too, in our view, with the
ASP stopping its declining trend.
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We prefer DP and SCW, as both should benefit from the recovery and
trade at more attractive valuations. We maintain our OUTPERFORM
rating on CMHI and suggest investors accumulate the stock on any
weakness, as we expect it to benefit most from the global trade recovery.
We think SIPG and TPD are overvalued with all positives priced in.