1H22 results slightly beat our expectation

Shanghai International Port (SIPG) announced its 1H22 results: Revenue grew 15.7% YoY (or 18.7% QoQ) to Rmb20.09bn, and attributable net profit reached Rmb10.81bn, implying EPS of Rmb0.46 (+24.0% YoY or +81.3% QoQ). We believe the firm’s 1H22 results slightly beat our expectation mainly due to increasing revenue and profit of its subsidiaries as well as rising investment income from the companies in which SIPG holds a stake.

In 2Q22, SIPG’s revenue fell 20.6% YoY (or 38.1% QoQ) to Rmb7.68bn, and attributable net profit declined 7.7% YoY (or 3.2% QoQ) to Rmb5.32bn. In 1H22, SIPG’s cargo throughput decreased 15.7% HoH (or 11.5% YoY), and container throughput slid 6.4% HoH (or 1.7% YoY). We attribute the firm’s profit growth in 1H22 to rising profit from its subsidiaries (e.g., Shanghai Ruitai Forwarding, Shanghai Rui Xiang International Freight Forwarding, and JJ Shipping), and increasing investment income from the companies in which SIPG holds shares.

Trends to watch

Impact of COVID-19 easing; main business resilient. The resurgence of COVID-19 in Shanghai has weighed on the throughput and operational efficiency of SIPG’s port business. In April 2022, cargo throughput fell 30.3% QoQ and container throughput declined 24.8% at Shanghai Port. The average waiting hours for ships to be docked and the average time taken to load and unload a ship at Shanghai Port increased by 199.4% and 149.1% QoQ in April. As the COVID-19 resurgence eased and companies located in port hinterlands gradually resumed production and work, we see a rapid rebound in the throughput at Shanghai Port, returning operations to pre-pandemic levels. In July, the value of exports and imports of Shanghai grew 16.7% YoY, with cargo and container throughput rising 2.0% and 16.2% YoY. We expect the firm’s port business to maintain rapid growth as domestic demand grow steadily and exports and imports of Shanghai further expanded in 2H22.

Diverse businesses and investments to boost profit growth. According to its announcement, SIPG subsidiaries - Shanghai Ruitai Forwarding, Shanghai Rui Xiang International Freight Forwarding, and JJ Shipping - contributed combined revenue totaling Rmb7.99bn (+34.5% YoY) and profit equaling Rmb2.13bn (+35.0% YoY) in 1H22. The firm’s investment income from companies in which it held shares totaled Rmb6.49bn, with the combined contribution from Orient Overseas (International) Limited, Bank of Shanghai and Postal Savings Bank of China reaching Rmb5.96bn (+41.2% YoY). In 1H22, SIPG added a new investment, Ruihe Real Estate Development Co., Ltd, to its portfolio. We expect the firm’s diverse businesses and investments to continue contributing incremental profit.

Financials and valuation

We leave our 2022 and 2023 earnings forecast unchanged. The stock is trading at 8.1x 2022e and 7.9x 2023e P/E. We maintain an OUTPERFORM rating and our TP at Rmb7.28 (implying 10.9x 2022e and 10.7x 2023e P/E), with 35.1% upside.

Risks

Macroeconomic downturn; falling container port fees; wider spread of COVID-19 than expected; decelerating import and export trade.