CICC released a research report maintaining CHINA MER PORT's (00144) 2025 net profit forecast essentially unchanged while introducing a 2026 net profit projection of HK$7.7 billion. The current stock price implies 8.2x 2025 P/E and 8.0x 2026 P/E ratios. The firm maintains its outperform industry rating and, due to significant non-recurring losses expected in 2025, has based its valuation on 2026 earnings, raising the target price by 13.8% to HK$16.5 per share. The target price corresponds to 9.3x 2025 P/E and 9.0x 2026 P/E, representing 12.8% upside potential from current levels. The company's current stock price offers attractive dividend yields of 5.4%/5.9% for 2025/2026.
CICC's main viewpoints are as follows:
**1H25 Results Below Expectations**
The company announced 1H25 results: revenue of HK$6.457 billion, up 11.4% year-over-year, and attributable net profit of HK$3.584 billion, representing basic earnings per share of HK$0.854, down 19.5% year-over-year. The company's performance fell short of expectations, primarily due to reduced investment income from associate Shanghai International Port Group, as the latter's equity stake in Postal Savings Bank of China was diluted following a share placement in the first half, resulting in decreased investment income under Hong Kong accounting standards. However, this impact is one-time and does not affect the company's cash flow. Excluding this one-time non-operating loss, the company's port business revenue and profit growth exceeded expectations, mainly due to better-than-expected port throughput volumes.
The company's operating cash flow declined year-over-year in the first half, primarily due to timing differences in dividend distributions from associates, leading to reduced dividend receipts. Excluding this factor, the company's operating cash flow maintained steady growth.
**1H25 Domestic and Overseas Port Throughput and Earnings Growth**
The company's controlled terminal container throughput increased 11.3% year-over-year, while overall container throughput from controlled and associated ports rose 4.3% year-over-year. By region, 1H25 container volumes from the company's controlled and associated terminals in the Pearl River Delta, Yangtze River Delta, Bohai Rim, and overseas markets changed by +7.8%/+5.9%/+0.1%/+5.0% respectively year-over-year. The company's Pearl River Delta controlled terminals and overseas controlled terminals showed impressive growth, with throughput volumes up 10.2%/20.1% respectively year-over-year.
Benefiting from strong throughput growth at the company's terminals, port business profit increased 11.7% year-over-year in the first half, with investment income from overseas associated ports rising 38.0% year-over-year.
**Significant Results from Lean Operations, 1H25 Cost and Expense Reduction**
Through optimizing port operations processes, increasing automation levels, and expense management, the company achieved year-over-year reductions in cost and expense ratios in the first half. 1H25 gross margin reached 51%, up 2.9 percentage points year-over-year, while administrative expense ratio decreased 0.8 percentage points year-over-year.
**Optimistic About Overseas Terminal Volume Growth Providing Long-term Growth Potential**
Major controlled overseas terminals showed impressive container throughput growth in the first half. Through developing and introducing new container shipping routes, the company's Sri Lankan HIPG terminal achieved container throughput growth of 542.9% year-over-year. Additionally, the company drove business volume growth through equipment upgrades at some overseas terminals, such as the West African TCP terminal, which saw container volume increase 24.6% year-over-year in the first half.
Looking ahead, the firm believes that with economic growth in overseas port hinterlands and the company's continued operational empowerment, overseas port business volumes are expected to achieve sustained high growth over the long term.
**Risk Factors:** Global economic growth slowdown, volatility in U.S. tariff policies.