Guosen: CHU KONG SHIPPING Restarted ‘Buy’
Guosen Securities said it is reinitiating port handling, passenger and freight transport play Chu Kong Shipping Development Co Ltd (HK: 560) with a “Buy” recommendation and a target price of 1.94 hkd, which sports a whopping 55.2% upside.
“Taking into account the industry policies encouraging steady growth of the passenger transport business, we feel that in 2012 the company’s profit ability will be improved. 12-month target price corresponds to 11.9x / 11.2x, 2012F/2013F P/E,” the research house said.
Guosen said the Hong Kong-listed logistics firm is benefitting from its controlling shareholders' support as well as encouragement from industrial policy.
“Chu Kong is able to enjoy excellent prospects. The controlling shareholder is going to inject a branch of the logistics business into the Hong Kong-listed entity worth one billion hkd.
"These assets mainly include the shares of Shunde Rong Qi terminal, Panyu terminal and Lotus Hill terminal, and the Nansha Port Bonded Logistics Park warehouse business.”
In addition, with supportive policy from above gradually rolled out for the Pearl River region (where Chu Kong operates), the company is likely to enjoy even more such support in the future, Guosen added.
Focusing on the inland transportation business since 2008, the company has “basically completed” its sale of uncorrelated businesses and injection of related assets into the listed firm by the end of 2011.
“In 2011, the company main operational parameters saw steady growth despite the sluggish global economy and despite the rise in fuel prices, with overall profitability growing around 4% year-on-year,” Guosen said.
Chu Kong currently enjoys a leading market share in the Pearl River Delta for its operations, controlling around 22% of the dock handling business and 91% of the passenger market last year.
“In addition, the Pearl River Delta’s regional economic activities remain very active, both in terms of GDP growth and the import/export volume of trade -- both always at the top position in all of China.
"Chu Kong Shipping will be therefore continue to benefit from that.”
Guosen added that the Hong Kong-listed firm’s financial condition is “fairly well” with leveraging rates at a “reasonable level.”
“Core income remains stable, expenses are within a reasonable range, operating cash flow is steady and accounts receivable are healthy.”
Shenzhen-based Guosen, founded in 1989, is one of the oldest brokerage firms in China with 60 analysts covering over 200 companies. Guosen provides a wide range of products in brokerage, investment banking, asset management and research.
Guosen employs over 1,300 professionals in more than 40 branches in major cities all over the country, serving millions of institutional and individual clients. It was one of the three original brokerage houses in the country and continues to lead the market with a prominent reputation for its yearly high turnover transactions.
Several branches have been dominating respective local markets for more than 10 years. While being one of the most profitable brokers, Guosen said on its website that it is committed to building strong client relationships and delivering consistent results.
Bocom: HK-listed Container Shipping Sector ‘Underperform’
Bocom International said it is maintaining its “Underperform” rating on container shipping firms listed in Hong Kong.
“Shipping consultancy Alphaliner warned in its latest bi-weekly magazine that the loadable capacity on the Asia-Europe trading lane will exceed last year’s by July if some of the planned capacity addition is put into work. Container shipping companies are also reiterating their intention to impose the Peak Season Surcharge on the Transpacific west-bound cargoes from June 15 onward,” Bocom said.
The research house said that “the reality is that freight rates are weakening across the board.”
“The Shanghai Container Freight Rate Index dropped 1.2% week-on-week, the third week of declines in a row, with freight rates for container cargoes heading to Western European ports from Shanghai down 1.8% w-o-w after a decline of about 10.0% aggregate in two previous weeks.
“The only exception was the freight rate on the Transpacific trading lane, still only flat w-o-w, as load factor reported by the Shanghai Shipping Exchange was still relatively robust at about 90% last week.”
The share prices of most Hong Kong-listed container shipping companies were weak last week.
“Only China COSCO and SITC had staged a small rebound in share price over last week, up 3.6% and 3.5%, respectively. Overall, we believe there are few strong positive catalysts in the near term to propel a strong rebound in share prices for container shipping companies.”
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