This document provides an analysis of China Merchants Port Holdings Co Ltd (CMPort) conducted by Julia Xu of Tsinghua University for a stock pitch competition. It summarizes CMPort's business operations and financial performance, evaluates growth opportunities from China's Belt and Road Initiative and increasing international trade, and presents a discounted cash flow valuation to support a target price of HKD $38.14, implying 79.48% upside from the current price. Some risks discussed include potential weakness in international trade growth and balance sheet impacts from acquisitions.
1. China Merchants Port Holdings Co Ltd（144.HK）
Fidelity Stock Pitch Competition Presentation
Julia Xu
Tsinghua University
2016/10/11
2. Economy Drivers: International Trading Environment
Company Analysis: CMPort Fundamentals and Key Drivers
Valuation: DCF & Multiples
Potential Risks: Potential Downside to CMPort
3. CMPort is the Industry Leader in Port Logistics
• CMPort is China’s largest and global leading port operator, with a comprehensive ports network at the hub
locations along coastal China as well as South Asia, Africa, Europe and Mediterranean.
CMPort (144.HK) Key Figures
Industry Logistics
Current Price HKD $21.25
Target Price HKD $38.14
Upside 79.48%
52 Week Rage HKD $19.36-28.00
Market Cap HKD $55.58B
Average Vol (3m) 3,584,780
Source: Yahoo Finance, as of Oct.04,2016
15
17
19
21
23
25
27
CMPort’s Share Prices has Been Decreasing in
the Past Year(Oct 04,15-Oct 04,2016)
• CMPort accounts for 32% of total market share in
China.
• Given CMPort’s strategic positions and efficient
operations, I believe CMPort is undervalued.
52.28 57.29 60.21
71.32
80.84 83.66
0
20
40
60
80
100
2010 2011 2012 2013 2014 2015
CMPort Ranks Number 1 in China and Number 2
Worldwide in TEUs
Millions TEUs
Source: Yahoo FinanceTEU: Twenty-foot equivalent unit
Share Price impacted by the negative growth in
international trades within the APAC region
4. The group’s performance is expected to grow with
improvements in international trades in APAC
• The negative growth of international trade in China is expected to improve as through series of regulations
and increase in net capital inflow of foreign investments. Despite the weakening of China’s international
trades, against the overall slower growth in the world, China is still sitting at a good position.
17.19%
3.28% 5.74%
2.35%
-6.96%
-10%
-5%
0%
5%
10%
15%
20%
-
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
2010 2011 2012 2013 2014 2015
Total Amount of China'a Import and Export (Billions
RMB)
Total Import and Export Growth Rate
-9.80%
-15.70%
8.60%
-0.30% 2.80%
-20%
-15%
-10%
-5%
0%
5%
10%
0
200
400
600
800
1000
1200
1400
Jan Feb Mar Apr May
China's International Trading is Improving in 2016
(Billions RMB)
Export Import Total YOY Gorwth
0
200
400
600
800
1000
1200
1400
1600
The Chinese Trading Environment Shows More
Stability(Mar,04-Oct,06)
CCFI BDI
• CCFI:China Containerized Freight Index which covers
spot market rates and contractual rates from Chinese ports.
• BDI: Provides an assessment of the price of moving the
major materials by sea world wide.
Source: National Bureau of Statistics of the PRC
Source: National Bureau of Statistics of the PRC
5. Port Operations is the main source of revenue for CMPorts
• CMPorts disposed Cold Chain Operations in 2015 to focus on its core business of ports operations.
The Group aims to become the World’s leading port service provider.
CMPort (144.HK) Time Line
Prior to 2001
The Group focused on diversification with
assets in Ports, Toll Roads, Oil Tanker,
Manufacturing, etc
2001
Positioned the port business as its core
business
2004
Transferred all toll Roads and divested from
oil tanker business
2015 Disposed Cold Chain Operations
2016
Changed group name from China Merchants
Holdings to China Merchants Port Holdings
88.81%
86.58%
91.23%
91.78% 91.29%
0
10000
20000
30000
40000
50000
2011 2012 2013 2014 2015
Port Operation is the Group's main source of
Revenue (Millions HKD)
Total Revenue Ports Related Business Revenue
Core Business Contribution Rate
• The group makes money from providing Ports Service, Transportation, Container Service and Container yard
management.
• The Group’s income is related with the international trade environment and the number of ports it owns.
6. CMPort successfully leverages on government policies that
offers the company a positive outlook
• Against the backdrop of a sluggish recovery in external demand, the group still sees ample
opportunities as the group is a major player in both “The Belt and Road Initiative” and the Free
Trade Zones.
• The five major goals of “The Belt and Road Initiative”
are: policy co-ordination, facilities connectivity,
unimpeded trade, financial integration, and people-
to-people bonds.
• The Initiative is expected to promote international
trade and CMPort is in great position to capitalize on
this new policy.
• The group is a major player in all free trade zones in
China.
• The Group benefits from the greater freedom in
foreign exchange movements within these FTZs.
Bohai Bay
# Ports:3
Home to Tianjin FTZ
Yangtse Delta
# Ports:2
Home to
Shanghai FTZ
Pear River Delta
# Ports:9
Home to Guang Dong
FTZ
Southwest Coastal
# Ports:1
Taiwan
# Ports:1
7. CMPort is expanding in its international presence based on
healthy balance sheet
• The firm leverages on its healthy balance sheet and use it to acquire overseas terminals to offset the stalled growth
in the greater China region. In 2015, the group recorded a record high container throughput of 83.66 million TEUs
in aggregate, up 3.5% from 2014 against the weak international trading environment, with the overseas operation
growing at 14.2%.
South Korea
# Ports:1
Sri
Lanka:
# Ports:1
Djibouti
#
Ports:1
Republic
of Malta
# Ports:1
Nigeria
# Ports:1
The
Republic of
Togo
# Ports:1
Abidjan
#
Ports:1
Morocco
# Ports:2
USA
# Ports:2
France
# Ports:3
Belgium
# Ports:2
Turkey
# Ports:1
China
# Ports:11
Areas of Operations
Areas of Future
Expansion
Liquidity Ratio
CPMH
Industry
Average
Current
Ratio
2.57 1.21
Quick
Ratio
2.55 1.15
Cash Ratio 0.84 0.54
Source: Yahoo Finance
Solvency Ratio
CPMH
Industry
Average
Debt/
EBITDA
2.67 4.98
Debt/Asset 39.07 33.26
Interest
Coverage
2.88 2.81
Source: Yahoo Finance
8. CMPorts is also a key player in promoting e-commerce
and green technology to enhance efficiency
• The firm is active in promoting cross-border e-commerce business and also actively integrate green
logistic technologies to enhance efficiency and conserve energy. Because of the firm’s efficiency, the
firm’s operating profit margin is 31.52%, higher than comparable companies.
CMPort is expanding through technology
E-Commerce
• Electronic trading systems for grains
• CMPH signed a strategic co-operation
agreement with China Resources
Vanguard
Settlement platform
• Shenzhen Baohong Ecommerce
(Qianhai FTZ)
• China Merchants International
Terminal(Qingdao Logistics Park)
• Tianjin Haitian Bonded Logistics
Company(Dongjiang Bonded Port
Zone)
CMPort has higher profit margin than average
Company Ticker Gross Margin
Operating
Margin
CMPort 144.HK 43.67 32.09
Industry Average 26.67 16.55
COSCO SHIPPING
Ports
1199.HK 37.36 25.41
Xiamen International
Port
3378.HK 13.11 8.36
Dalian Port (PDA) Co 2880.HK 15.64 8.91
Tianjin Port
Development
3382.HK 22.75 11.01
Shanghai International
Port
600018.CH 30.88 24.4
Zhuhai Port Co 000507.CH 18.24 5.41
Hutchison Port
Holdings
HPHT SP 48.7 32.34
Source: Yahoo Finance
9. Investment Thesis
1 International trade especially trading involving APAC is improving.
2
The group’s revenue is related to the number of ports it owns, and the number of
ports the group owns is growing through M&A.
3
The group’s margins are higher than comparable. Therefore the conjunction of
growth in macro environment, the number of ports, and efficient operations
makes the group a strong buy.
10. Valuation
Key Assumptions
Revenue Growth Rate
Greater China 1%
Overseas
10% from 16-18,
and 5% from 18-20
Associates and JCEs 10%
Cost of Sales
% of Total Operating
Revenue
56%
SG&A
% of Revenue 12%
Implied Share Price
Enterprise Value 127,600.36
Plus: Debt 8,852.00
Plus: Cash 10,293.00
Less: Interests in
associates
-37,953.00
Less: Interests in
Joint Venture
-9,041.00
Implied Equity Value 99,751.36
Shares Outstanding 2,615.71
Implied share price 38.14
HISTORICAL PERIOD PROJECTION PERIOD
HK$'million 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
Total Revenue 7,758.00 8,257.00 8,233.00 8,414.94 8,603.93 8,805.00 8,951.34 9,101.94
EBIT 5,781.00 6,169.00 6,315.00 6,769.50 7,277.34 7,833.49 8,421.02 9,063.68
Less:Taxes -842.00 -1151.00 -790.00 1015.42 -1091.60 -1175.02 -1263.15 -1359.55
Plus:D&A 1224 1261 1392 1345.18 1376.63 1408.80 1432.21 1456.31
% of sales 0.16 0.15 0.17 0.16 0.16 0.16 0.16 0.16
Plus: Changes in NWC 2100.00 -1828.00 548.97 -3.77 -4.02 -2.92 -3.01
Less:CapEx -3919 -3644 -2376 -2500 -2500 -2500 -2500 -2500
Unlevered Free Cash Flows 4,735.00 2,713.00 5,148.22 5,058.59 5,563.26 6,087.16 6,657.43
WACC 7.77% 7.77% 7.77% 7.77% 7.77%
Normal Discount Period 1 2 3 4 5
PV OF FREE CASH
FLOWS
4,777.06 4,355.50 4,444.68 4,512.64 4,579.59
P/E Ratio Valuation
Ticker Company
Share Price (Local
Currency)
EPS P / E
2015A 2016E 2017E 2015A 2016E 2017E
144 HK China Merchants Ports 28.56 1.551 1.671 1.796 15.5 x 15.9 x
1199 HK COSCO SHIPPING Ports 8.15 1.000 1.039 1.119 8.2 x 7.8 x 7.3 x
3378 HK Xiamen International Port 1.59 0.120 0.099 0.091 13.3 x 16.1 x 17.4 x
2880 HK Dalian Port (PDA) Co 1.40 0.060 0.045 0.042 23.3 x 30.8 x 33.0 x
3382 HK Tianjin Port Development 1.21 0.100 0.113 0.113 12.1 x 10.7 x 10.7 x
600018 Ch
Shanghai International
Port 5.12 0.280 0.276 0.301 18.3 x 18.6 x 17.0 x
000507
CH
Zhuhai Port Co
6.02 0.130 0.589 0.491 46.3 x 10.2 x 12.3 x
HPHT SP Hutchison Port Holdings 0.44 0.030 0.031 0.032 14.5 x 14.1 x 13.7 x
Average 15.5 x 15.9 x
Median 14.1 x 13.7 x
11. Risk
1
The execution of The Belt and Road Initiative may not be as successful as what
consensus believes and the international trade situation in the Greater China
Region may continue to weaken.
2
M&A may weaken the group’s balance sheet. The group may have difficulties in
managing overseas projects.
3
95% of the company’s net income are generated in RMB dollars, but are recorded
in HK dollars. The consensus now is that RMB faces pressures of deprecation.
This factor may also influence the group’s recorded revenue.
