CHU KONG SHIPPING Enterprises (Group) Co Ltd (HK: 560; CKSG) said its parent company and its largest shareholder -- Chu Kong Shipping Enterprises (Hldgs) Co Ltd (CKSE) – that CKSE has increased its shareholding in CKSG via the secondary market by 5.208 million shares.
Before this increase, CKSE held 639,274,000 shares of CKSG, representing approximately 71.03% of the Hong Kong-listed firm’s total issued shares.
CKSE now holds 644,482,000 shares of CKSG, representing approximately 71.61% of CKSG.
Chu Kong did not say over what period the additional shares were bought nor what the average purchase price was.
On January 8, the time of the announcement, Chu Kong’s Hong Kong-listed shares closed the trading day at 1.59 hkd, which was close to its 52-week high.
Using 1.59 hkd, one would estimate that Chu Kong's parent paid around 8.28 million hkd -- or, most probably, less -- for the additional shares.
CKSE said it intended to increase its shareholding in CKSG by acquiring shares from the secondary market within the next 12 months.
Any future increase of the shareholding in CKSG by CKSE will be limited to the extent that CKSG’s position as a listed issuer will not be affected.
CKSE said it has full confidence in its future development, said Executive Director Huang Shuping.
CKSE was established in 1962. The company's strategic orientation is based on Hong Kong, backing on the mainland and facing the world. The main business of CKSE includes shipping operations between Hong Kong and the Pearl River Delta (PRD), high-speed water passenger transport and passenger ship trading and repair. It is also involved in sales and supply of oil and duty-free goods; investment and management of highway infrastructure; real estate development, tourism, marine advising, etc.
In September 1996, CKSD was established by CKSE to take over its cargo transportation business, including shipping agency, river cargo direct shipments and transshipments, wharf cargo handling (including mid-stream operations), cargo consolidation and godown storage as well as container hauling and trucking in Hong Kong.
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Essence International Research said it is hiking its target price on Chu Kong Shipping Enterprise (Group) Co Ltd (HK: 560) to 2.20 hkd from 1.38, while maintaining a “Buy” call (recent share price 1.68 hkd).
“Chu Kong Shipping is entering a fast-growth track, and has a repositioning strategy, preparing for overall listing,” Essence said.
Chu Kong Shipping’s share price has risen 43% since Essence’s initial coverage report in July and reached its previous target price of 1.38 hkd.
“We expect the actions taken can reshape its corporate image and boost investor confidence, leading to a new round of valuation rerating,” the research house said.
Passenger and cargo traffic reported stable single-digit growth for the first nine months of 2012.
The two core businesses registered steady growth in the first three quarters of 2012.
Cargo operations are primarily led by container business with 6% and 16% yoy growth in containers transported and handled, respectively, to 840,000 and 828,000 TEU.
Passenger agency services rose 3% to 4.4 million served, while passengers using CKS’ terminals rose 10% to 5.2 million.
“In view of the global economic slowdown in 2012, overall business growth for CKS is satisfactory. The steady operating performance was also reflected in first half 2012 results.”
Excluding one-off disposal gains of non-core toll-road businesses in 2011, core earnings growth was 6.9%, while reported earnings dropped 15.3% to HK$ 70.1 million.
Nansha logistics development to spur new growth for CKS
The Guangzhou Shipping Exchange, which is the first shipping exchange in South China, was established in the Nansha New Area in December 2012.
“The buildup of the Guangzhou Shipping Exchange will create a distinctive and modern shipping service system with a complete range of industry services including the establishment up of the ‘Pearl River Delta Freight Index’, managed by CKS and owned by its parent, Nansha Logistics Park is expanding the scale, and CKS also formed a strategic alliance with Singapore’s THT Logistics to target customers in Southeast Asia,” Essence added.
As per the agreement with its parent, CKS’s parent will inject its interest in the park to CKS at an appropriate time, making CKS fully benefit from business opportunities arising from the development of Nansha New Area.
Growth opportunities from new businesses
CKS reported two new business incentives -- moves which reflect the company’s intention to boost its own earnings capability.
“The signing of the management agreement with CotaiJet is particularly crucial as it is immediately earnings accretive,” Essence said.
Based on the six million passengers currently carried, the research house estimates the earnings contribution should reach HK$30 million and accounts for 20% of the profit in 2011.
“We estimate passenger traffic volume to post a CAGR of 30% in the future. In addition, CKS also formed a media joint venture with One Media Group -- Connect Media -- to capture advertising business opportunities aboard Chu Kong’s passenger vessels and at its terminals.
“The advertising arm is expected to bring material earnings contribution in 2014, with a target of an eventual separate listing.”
In consideration of the improvement in company fundamentals and stock liquidity, Essence said it believes a valuation based upon price-to-earnings ratio is more appropriate now.
Based on 12x and 9x 2012 and 2013 P/E, or 1x 2012 book value, the corresponding target price is 2.20 hkd.
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