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We hosted a JPM Live call on the topic of “Asia Port View”, with speakers
including analysts in HK/China, India, Europe, Australia and Philippines.
(Refer to the right-hand column for replay details, Tables 1-2 for the global
sector valuation table and summary of investment recommendations).
Why a joint call on “Asia port view” now? (1) Growth outlook for these
port operators is increasingly linked together. (2) Asian operators have been
expanding beyond boundaries. DPW, ICT and Hutchison, COSCO Pac all
have port projects outside their home bases, particularly in the emerging
markets. (3) Finally we also believe now is also an interesting time to revisit
the sector, particularly following the recent corrections.
China: Chinese port operators have been moving into the “mature
growth” stage in the life cycle, turning more cash-generative with
improving ROE despite moderating earnings growth: Major listed
stocks have fallen by around 20% since recent peaks on growth concerns.
We spoke to management over the past few days, all of whom retained fullyear
guidance, viewing recent dips as corrections on the growth path.
Valuations therefore appear attractive at current levels, given that operators
we cover are all on track to deliver an average >20% EPS growth FY11E
driven by a low-teen throughput rise and c5% pricing increase. Maintain
OW on CP and HPH Trust.
India: Growth and project level profitability of Indian ports stands out
among regional listed plays: The existing capacity of both MPSEZ and
Essar Ports operates on the ‘landlord + operator’ model which helps to
capture value and efficiencies within the port. Improving capacity
utilization has been the key driver for RoE expansion at private greenfield
ports in India. Essar Ports (OW), currently in sharp ramp-up mode, is likely
to witness a rapid rise in RoE from low single digits to ~22% over the next
three years, bridging the gap with MPSEZ. Essar Ports is our top pick in
India: Growth prospects and asset quality of MPSEZ seem priced in. Essar
Ports is our preferred play with an estimated EBITDA CAGR of 37%
through FY15 (vs. 32% for MPSEZ) and revenue visibility up to ~85% of
our FY12-13. Essar trades at 8.7x FY13 EV/EBITDA, at a discount to
MPSEZ (~13x) and average regional port valuations (~12x).
Philippines: We recommend accumulating ICTSI in view of its potential
20% upside: ICTSI will deliver a three-year earnings CAGR of 24%,
according to our forecasts, driven by throughput growth, contribution from
recently acquired terminals, and improving profitability of China and newly
acquired terminals in Croatia and Oregon. ICTSI’s superior growth trend as
affirmed by the strong 1Q11 earnings has gained investor interest traction
amid the generally weak corporate earnings seen among the Philippine
names. ICTSI trades at an undemanding 8x EV/EBITDA FY11E, at a 30%
discount to global peers despite enjoying better earnings quality. The current
stock price implies a valuation of US$286/TEU, vs. a global replacement
cost range of US$350-500/TEU.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We hosted a JPM Live call on the topic of “Asia Port View”, with speakers
including analysts in HK/China, India, Europe, Australia and Philippines.
(Refer to the right-hand column for replay details, Tables 1-2 for the global
sector valuation table and summary of investment recommendations).
Why a joint call on “Asia port view” now? (1) Growth outlook for these
port operators is increasingly linked together. (2) Asian operators have been
expanding beyond boundaries. DPW, ICT and Hutchison, COSCO Pac all
have port projects outside their home bases, particularly in the emerging
markets. (3) Finally we also believe now is also an interesting time to revisit
the sector, particularly following the recent corrections.
China: Chinese port operators have been moving into the “mature
growth” stage in the life cycle, turning more cash-generative with
improving ROE despite moderating earnings growth: Major listed
stocks have fallen by around 20% since recent peaks on growth concerns.
We spoke to management over the past few days, all of whom retained fullyear
guidance, viewing recent dips as corrections on the growth path.
Valuations therefore appear attractive at current levels, given that operators
we cover are all on track to deliver an average >20% EPS growth FY11E
driven by a low-teen throughput rise and c5% pricing increase. Maintain
OW on CP and HPH Trust.
India: Growth and project level profitability of Indian ports stands out
among regional listed plays: The existing capacity of both MPSEZ and
Essar Ports operates on the ‘landlord + operator’ model which helps to
capture value and efficiencies within the port. Improving capacity
utilization has been the key driver for RoE expansion at private greenfield
ports in India. Essar Ports (OW), currently in sharp ramp-up mode, is likely
to witness a rapid rise in RoE from low single digits to ~22% over the next
three years, bridging the gap with MPSEZ. Essar Ports is our top pick in
India: Growth prospects and asset quality of MPSEZ seem priced in. Essar
Ports is our preferred play with an estimated EBITDA CAGR of 37%
through FY15 (vs. 32% for MPSEZ) and revenue visibility up to ~85% of
our FY12-13. Essar trades at 8.7x FY13 EV/EBITDA, at a discount to
MPSEZ (~13x) and average regional port valuations (~12x).
Philippines: We recommend accumulating ICTSI in view of its potential
20% upside: ICTSI will deliver a three-year earnings CAGR of 24%,
according to our forecasts, driven by throughput growth, contribution from
recently acquired terminals, and improving profitability of China and newly
acquired terminals in Croatia and Oregon. ICTSI’s superior growth trend as
affirmed by the strong 1Q11 earnings has gained investor interest traction
amid the generally weak corporate earnings seen among the Philippine
names. ICTSI trades at an undemanding 8x EV/EBITDA FY11E, at a 30%
discount to global peers despite enjoying better earnings quality. The current
stock price implies a valuation of US$286/TEU, vs. a global replacement
cost range of US$350-500/TEU.
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