China's listed ports sector looks set to post a solid full-year performance despite the threat posed by Covid-19, a top Singapore analyst has predicted.
DBS Bank analyst Paul Yong has raised his full year earnings for Cosco Shipping Ports by 5%, China Merchants Port by 51% and Hutchison Port Holdings Trust (HPHT) by 33%.
"Year-to-date throughput volume growth for all three ports under our coverage have been impressive, ranging from mid-single digit to double-digit growth, which can be attributed to the successful containment of Covid-19 in China in the first half of the year," said Yong.
"The growth outlook in the second half of 2021 is flattish due to a high base in the first half of last year, but we still expect a resilient full year performance on the back of strong volumes in the first half of 2021."
Yong said the firm month-on-month recovery in container volumes at Cosco Shipping Ports' terminals can be attributed to the recovery of volumes in Pearl River Delta after a temporary port disruption at Yantian in May-June due to a Covid-19 outbreak as well as the inclusion of throughput from the newly acquired Red Sea Gate Terminal from July 2021.
"The year-on-year performance looks slightly weaker due to a high base effect from July and August 2020, but year-to-date performance still remains strong at 5.3% growth, with Greater China growth at 5.1% and overseas growth at 6%," he said.
Yong said HPHT's Yantian port volumes further increased by 18.9% month-on-month to 1.25m-teu in August after a 70.6% increase in July "signaling an improvement in the backlog situation since the disruption at the port".
However, the company has said that the stricter prevention and control measures, such as disinfection procedures on vessels, have had a small impact on productivity at this juncture.
Yong said the strong year-on-year throughput growth at China Merchants Port's terminals, which were up 10.3% to 12m-teu in August, mainly came from volume growth in the Western Shenzhen, Yangtze River Delta and Bohai Rim regions.
"Year-to-date growth volume growth stands at an impressive 17.3%, with Mainland China, Hong Kong and Taiwan growing 14.6% and overseas growing 26.1%," he said.
Yong said the stronger performances also held out the prospect of the three port operators increasing their payouts to shareholders.
"While we expect dividends for the second half of 2021 to remain firm on robust earnings performances, we believe that there is room for the port companies to further raise their payout ratios as their overall leverage positions remain low and raising their dividends further would also help to drive return on equity, and hence their own price-to-book multiple, improvements," he said.
Yong said he believes that firm dividends on resilient earnings can “help drive the re-rating of their share prices".
He said all three companies had "undemanding valuations" and that it was a "good time to buy” with all three port companies trading below or close to their five-year average price-to-book.
