Chinese Port Operators lagging Behind Their Non Chinese Peers Drewry
LONDON: In our mid-summer rePort we had highlighted the Port sector’s valuations reflecting changing fundamentals to an era of slower growth. Most of the operators underperformed the global MSCI World Index in the third quarter, with Chinese operators lagging their non-Chinese peers.
Drewry Comment -
We see continued pressures for the sector as the shipping industry enters a new phase of slower growth. While vessel-upsizing improves the cost-advantage of shipping lines, Port operators face diminishing returns on investments in the absence of tangible demand growth.
While positioning themselves for China’s One Belt One Road masterplan, deeper-pocket Chinese operators have paid for assets at expensive valuations that price out other contenders.
There are little signs of green shoots for mainland Chinese operators with laggard throughput growth across the three economic regions: Pearl River Delta, Yangtze River Delta and Bohai Rim.
Amongst other Port operations, container handling generates the strongest margin in mainland China. Although international containers garner higher average revenue per box than domestic, the former is more vulnerable to external demand shocks. Pearl River Delta commands superior revenue yield per box compared with other regions, but the incumbents at Shenzhen and Hong Kong are seeing increased competition from Guangzhou.
Current valuations of Chinese operators are slow to reflect weak earnings, while the market has downshifted valuations of non-Chinese peers. Hence, Chinese operators stand to weaken further when deteriorating earnings momentum becomes apparent in upcoming results.
Chinese operators have improved their net gearing profiles in the past six months, adopting a more cautious approach to the balance sheet leveraging. With parental supPort and connection with strong affiliates, none of the Chinese operators falls under the High investment risk category according to our bespoke Value / Risk rating methodology.