Share Price S$0.94
Target Price S$1.25
Key takeaways from Changshu Xinghua Port site visit
• Maintain BUY and target price of S$1.25.
• We recently visited Pan United’s Changshu Xinghua Port (CXP) in China to get an update on the operations from the local management.
• Re-investing in an old business. In Oct 05, Pan United (PUC) divested 24.7% of its effective interest in CXP to Macquarie International Infrastructure Fund (MIIF). Together with the acquisition of other minority interests, MIIF paid S$112.6m for its 38% effective interest in CXP. In its most recent transaction, MIIF divested the 38% effective interest in CXP (34.2% effective interest in CXP to PUC, 3.6% effective interest to Petroships) for S$112.2m. Since 2006, CXP’s EBITDA has grown at a 4.6% CAGR (FY06-FY12) to S$30.4m in FY12.
• Low breakeven utilisation. CXP has a low breakeven utilisation rate of only 30%. With CXP’s top 5 customers (repeat customers of more than a decade) already forming 60-70% of CXP’s cargo handling volume, we believe CXP is likely to continue with its consistent profitability. In 2012, CXP enjoyed a high utilisation rate of 86.4%.
• Looking for a 4th cargo. CXP currently handles three main forms of cargoes– steel, logs and pulp & paper. According to management, CXP remained profitable despite the global economic downturn in 2008 as cargo handling for logs and pulp & paper remained relatively resilient as regions around Yangtze River like Chong Qing and Hunan continue to exhibit strong economic growth. With greater control over CXP, PUC is looking for a 4th cargo to grow its bottom-line and reduce revenue fluctuations due to cargo concentration.
• Competition stepping up. Taicang Port, 70km away from CXP, has recently opened a new dock, Meijin Terminal. The 775m new terminal offers three berths which allow 5-tonne ships to anchor and three berths for 1,000-tonne barges with a throughput capacity of 4.15m tons/annum. Despite the rising competition, CXP has been able to maintain its market share in the region.
Publish date: 17/10/13