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China_20Port_20Sector_2020100715

VIEWS: 98 PAGES: 157

									         Hong Kong / China Industry Focus
         China Port Sector
Page 1
         DBS Group Research . Equity                                                                         15 July 2010

         Right port to dock
                                                                                                             HSI: 20,561
         China’s port sector is still a sunrise industry, riding on
         the country’s position as the world’s factory, as well as
         the insatiable appetite for raw materials and growing                                               ANALYSTS
         consumption internally. However, risks such as over-                                                Ken He +86 21 6888 3375
                                                                                                             ken_he@hk.dbsvickers.com
         capacity and competition do exist for some regions so
         investors should buy selectively. Our top picks are CMHI                                            Paul YONG CFA +8621 6888 3372
         (BUY, TP HK$32.34) and DLP (BUY, TP HK$4.18).                                                       paulyong@dbsvickers.com

         Strong earnings recovery for port operators in 2010.
         Port operators should benefit from the recovery of
         throughput and handling tariffs, higher port-related and
                                                                                                             Recommendation & valuation
         container-related businesses, as well as the sector’s high
         operating leverage and so we expect significant
                                                                                                                                                                            FY10F    FY10F
         improvement or turnarounds for all ports in 2010.
                                                                                                                                      Target                                        P/Core              Mkt
         Sanguine outlook for China’s ports generally.                                                       Company            Price  Price Upside Recom                        PE    EPS               Cap
                                                                                                                                 HK$    HK$      %                                x      x             HK$m
         China’s firm demand for raw materials is expected to
         drive imports and non-containerised cargo throughput                                                CMHI
                                                                                                                                 26.7     32.34            21       Buy       19.5         19.5        64,971
         growth. Meanwhile, coupled with rising consumption                                                  (144 HK)
         and as China continues to be the world’s factory, major                                             CP
                                                                                                                                  9.8     11.83            21       Buy         9.6        13.3        26,573
         coastal ports are expected to see 8-12% annual growth                                               (1199 HK)
         in container throughput over the next two years.                                                    DLP
                                                                                                                                 3.23       4.18           29       Buy       12.3         12.3         9,451
                                                                                                             (2880 HK)
         But risks do exist so buy selectively. For container
                                                                                                             XIP
         terminals, there exists overcapacity in Xiamen hub, whilst                                                              1.39       1.56           12      Hold       13.3         13.3         3,789
                                                                                                             (3378 HK)
         Tianjin and Shenzhen hubs also face the same problem.
                                                                                                             TPD
         Competition is also stiff amongst the different terminal                                                                1.71       1.94           13      Hold       17.7         17.7        10,530
         operators in each of these ports. Hence, we have HOLD                                               (3382 HK)
         calls on Tianjin Port and Xiamen Port.
                                                                                                             Source: DBS Vickers
         Top picks – CMHI and Dalian Port (DLP). For the two
         port conglomerates, we prefer CMHI to Cosco Pacific, as
         CMHI has consistently delivered a strong performance.                                               China Merchants Holdings International (CMHI): A port conglomerate with
         With a large operations base and high ROE, CMHI                                                     nationwide coverage, focusing on southern China. It also operates a logistics
                                                                                                             park and container manufacturing business.
         deserves a higher valuation among its peers. The                                                    COSCO Pacific Ltd. (CP): A port conglomerate created by a liner company
         successful listing of Ningbo Port Company and Zhanjiang                                             with nationwide coverage. It owns and operates terminals in Europe and
         Port Group may further drive up CMHI’s valuation.                                                   Singapore, and is also engaged in container leasing and manufacturing
                                                                                                             businesses.
         Amongst the three pure port plays, we like DLP, as it has                                           Dalian Port PDA Co., Ltd. (DLP): Monopoly in Dalian, mainly operates oil,
         multiple growth drivers with limited downside risks. Its                                            container, and auto terminals.
         growth is primarily fuelled by crude oil imports, where it                                          Xiamen International Port Co., Ltd. (XIP): Based in Xiamen hub, mainly
         has a near monopoly in northeastern China,                                                          operates container and bulk terminals, and is also involved in manufacturing
                                                                                                             of building materials
         underpinned by rising demand from China’s growing                                                   Tianjin Port Development Holdings Ltd. (TPD): Monopoly in Tianjin, mainly
         industrialization and demand for motor vehicles. In                                                 operates bulk, container, oil and auto terminals, and has a sales business.
         addition, DLP could even benefit from the RMB
         appreciation.




         In Singapore, this research report or research analyses may only be distributed to Institutional    “Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd
         Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act,   (“DBSVR”), are to contact DBSVR at +65 6535 9688 in respect of any matters arising from
         Chapter 289 of Singapore.                                                                           or in connection with this report.”
         www.dbsvickers.com
         Refer to important disclosures at the end of this report
         ed- JS / sa- DC
Industry Focus
China Port Sector




Table of Contents

Investment Summary                                                       3

Port Sector Overview                                                     4

Demand side: leveraged on the recovery of economy and trade              7

Supply side: overcapacity and competition?                             10

Beyond the marine port – opportunity from inter-modal transportation   15

Risks                                                                   17

Peer group comparison                                                   19

Valuation                                                               22

Stock Profiles                                                          28

China Merchants Holdings (144 HK)                                      28

COSCO Pacific (1199 HK)                                                 52

Dalian Port (2880 HK)                                                   78

Xiamen International Port (3378 HK)                                    104

Tianjin Port (3382 HK)                                                 124

Appendix                                                               147




 Page 2
                                                                                                                    Industry Focus
                                                                                                               China Port Sector




Investment Summary                                                   terminals, we project 10% annual growth of oil throughput
                                                                     for 2010 and 2011, driven by the industrialization and rising
Rapid cargo throughput growth in China since it joined the           demand for motor vehicles. On the supply side, we see
WTO in 2001. Driven by higher exports and import of raw              overcapacity emerging, but mainly in southern China.
materials, total port throughput in coastal China maintained
double-digit growth with CAGR of 17% from 2000 to 2008.              Integrated inland transport and marine networks. Previously,
China cargo traffic also achieved a 13% yoy growth to 4.9tn          slow railway development limited the growth of sea-rail joint
mt in 2009, even as container throughput declined by 6%.             transportation. Supported by the government’s huge rail
China container throughput now accounts for nearly a quarter         investments and rapid development of inland ports and
of the world’s total and this share is likely to continue growing.   bonded areas, we see more opportunities from inter-modal
                                                                     transportation especially sea-rail joint transportation.
Multiple long-term drivers: i) China continues to be the world’s
factory, with lower labour costs, land costs and improved            Key risks to the sector are: 1) worsening of sovereign debt
infrastructure. ii) more import opportunities as a result of         crisis in the EU; 2) rising trade friction; and 3) possible
increasing demand for imported energy and raw materials and          depressed exports due to RMB appreciation but offset by
foreign goods; iii) free trade between China and ASEAN and           higher imports.
removal of other trade barriers; and iv) more trans-shipment
businesses brought about by the favourable tariff policies and       Initiating coverage on CMHI with BUY, TP HK$32.34. Our
the expanded bonded ports.                                           SOTP-based TP is HK$32.34, implying 23.6x FY10 P/E and 2.2x
                                                                     FY10 P/BV. CMHI deserves a higher valuation for its larger
Short-term driver: recovery in foreign trade. We saw a better        business scale and consistently strong earnings performance. In
than expected pick-up in foreign trade in China since end-           addition, the successful listing of Ningbo Port Co. and Zhanjiang
2009, as major economies resumed growth and customers’               Port Group should add another HK$1.60 to CMHI’s valuation or
confidence levels climbed higher. We expect total cargo flows        5% to our TP.
to grow at double digital rates in China over the next two
years.                                                               Initiating coverage on CP with BUY, TP HK$11.83. Concerns on
                                                                     its Greek project led to the sharp drop of its share price recently.
Imminent earnings recovery in sight. We expect earnings to           However, we believe the market reaction is overdone, and
recover for port operators due to: i) higher port handling           current valuations are undemanding. We expect that a basket
operations; ii) rising handling charges as a result of less empty    of container businesses owned by CP are highly leveraged on
containers and more foreign trade; iii) increasing port-related      the recovery in trade. Our SOTP-based TP is HK$11.83, implying
businesses as well as improved utilisation from container            16.9x FY10 P/E and 1.2x FY10 PBV.
leasing and manufacturing; and iv) high operating leverage.
                                                                     Maintaining BUY call on DLP, TP HK$4.18. DLP’s growth is
Container terminals: nationwide overcapacity but mixed               primarily fuelled by imported crude oil. Impact of the Rmb
prospects for different regions. Container terminals are usually     appreciation on DLP will be insignificant or it may even benefit
driven by exports in China. We see no significant competition        from this. Our SOTP-based TP is HK$4.18, implying 16.0x FY10
between different ports due to quite different hinterland with       P/E and 1.6x FY10 P/BV. It has the highest ROE among its peers.
little or no overlap. Competition may arise between the              In addition, DLP’s shares may be re-rated on its A-share listing
different terminal operators within the individual port that is      as A-shares are trading at much higher multiples.
oversupplied. We see that overcapacity is more severe in
Xiamen hub. There is also overcapacity in Tianjin and Shenzhen       Initiating coverage on XIP HOLD, TP HK$1.56. XIP’s valuation is
ports. For the demand side, we expect 8-12% annual growth            the cheapest among peers, mainly due to its ROE which is the
of container flows for the next two years. We expect                 lowest amongst peers and intensifying competition within the
overcapacity pressure to be alleviated in 2012 due to the            Xiamen hub. Our SOTP-based TP is HK$1.56, implying 17.2x
recovery of world trade and slowing port investments.                FY10 P/E and 0.9x FY10 P/BV. Future asset acquisitions from
                                                                     parent may enhance its competitive edge and business scale.
Non-containerised cargo terminals: less overcapacity concerns
except for large-scale crude oil terminals. We see that coal and     Initiating coverage on TPD with HOLD, TP HK$1.94. Our
metal ore terminal constructions are still lagging behind. On        concern about increasing threat from neighbouring ports
the demand side, we forecast coal throughput to rise an              prompt us to initiate coverage of TPD with a HOLD rating, with
average 10% p.a. for the northern 7 ports in 2010 and 2011,          a HK$1.94 target price based on SOTP valuation. This translates
driven by higher electricity consumption amidst the economic         into 20.0x FY10 P/E and 1.5x FY10 P/BV. It is currently trading
recovery. Imported iron ore throughput growth is expected to         at 17.7x FY10 P/E and 1.4x FY10 P/BV, respectively, which is
slow to 4-5% in each of 2010 and 2011, as a result of slowing        higher than the sector’s average of 14.5x and 1.2x, respectively.
fixed asset’s investment and hike in imported prices. For oil




                                                                                                                                  Page 3
Industry Focus
China Port Sector




Port Sector Overview                                                                                         Container throughput continues to outperform rest of the
                                                                                                             world. Driven by higher exports, container throughput in
Total cargo throughput on an uptrend even in 2009. Driven                                                    coastal China registered a CAGR of 24% during 2000-2008,
by foreign trade, total cargo throughput in the coastal ports in                                             much higher than the global growth rate of 11%. In 2009,
China grew at double-digit growth at a CAGR of 17% from                                                      container throughput in coastal China decreased 6%,
2000 to 2008. In 2009, total cargo throughput continued to                                                   compared to the 11% decline on a global basis. As a result,
grow, rising 13%, whereas the rest of the world felt the                                                     China’s share of the global container throughput rose to 24%
impact of the financial crisis. In 1H10, total cargo throughput                                              in 2009. The figure was less than 10% in 2000. In 1H10,
achieved a commendable 20% yoy growth.                                                                       container throuhgput surged 22% as compared to that in
                                                                                                             1H09.



China Coastal Freight Throughput Growth                                                                    China Coastal Container Throughput Growth


  mn mt                                                                                                     mn TEU
  6,000                                                                                                     140                                                                                                   25%
                                                                                                            120
  5,000                                                                                                                                                                                                           20%
                                                                                                            100
  4,000                                                                                                                                                                                                           15%
                                                                                                             80
  3,000                                                                                                      60                                                                                                   10%
  2,000                                                                                                      40
                                                                                                                                                                                                                  5%
                                                                                                             20
  1,000
                                                                                                               0                                                                                                  0%
                                                                                                                      2000

                                                                                                                               2001

                                                                                                                                            2002

                                                                                                                                                     2003

                                                                                                                                                             2004

                                                                                                                                                                    2005

                                                                                                                                                                            2006

                                                                                                                                                                                     2007

                                                                                                                                                                                                  2008

                                                                                                                                                                                                           2009
         0
              1999

                       2000

                                2001

                                             2002

                                                      2003

                                                               2004

                                                                       2005

                                                                               2006

                                                                                      2007

                                                                                             2008

                                                                                                    2009




                                                                                                                                                   China Coastal (LHS)
                              Total                                    Foreign Trade                                                               As % of world total (RHS)

Source: CEIC, DBS Vickers                                                                                  Source: Drewry, CEIC, DBS Vickers

Total Cargo Throughput in Coastal China Monthly                                                            Container Throughput in Coastal China Monthly

 mn mt                                                                                                      th TEU
  500                                                                                                       12,000

  450                                                                                                        11,000

                                                                                                             10,000
  400
                                                                                                              9,000
  350
                                                                                                              8,000
  300                                                                                                         7,000

  250                                                                                                         6,000
                                                                                                                                                       Apr




                                                                                                                                                                                                     Oct
                                                                                                                                               Mar




                                                                                                                                                                           Jul




                                                                                                                                                                                                                  Dec
                                                                                                                                                                                   Aug
                                                                                                                             Jan
                                                                                                                                      Feb




                                                                                                                                                                    Jun




                                                                                                                                                                                            Sep
                                                                                                                                                              May




                                                                                                                                                                                                            Nov
                              Mar
                                       Apr




                                                                                      Oct
                                                                 Jul




                                                                                                    Dec
             Jan

                     Feb




                                                         Jun



                                                                        Aug

                                                                                Sep



                                                                                             Nov
                                                May




                       2007                         2008                      2009              2010                               2007                      2008                    2009                         2010


Source: CEIC, DBS Vickers                                                                                  Source: CEIC, DBS Vickers,




Page 4
                                                                                                                                               Industry Focus
                                                                                                                                         China Port Sector




China Exports and Imports                                                                    Fixed Asset Investments (Waterway)

 US$m                                                                                         RMB m
 1,600,000                                                                                    180,000                                                  50%
                                                                                              160,000                                                  45%
 1,400,000                  Export                Import
                                                                                              140,000                                                  40%
 1,200,000                                                                                                                                             35%
                                                                                              120,000
 1,000,000                                                                                                                                             30%
                                                                                              100,000
                                                                                                                                                       25%
   800,000                                                                                     80,000
                                                                                                                                                       20%
                                                                                               60,000                                                  15%
   600,000
                                                                                               40,000                                                  10%
   400,000
                                                                                               20,000                                                  5%
   200,000                                                                                          0                                                  0%




                                                                                                           2004


                                                                                                                   2005


                                                                                                                          2006


                                                                                                                                 2007


                                                                                                                                        2008


                                                                                                                                                2009
          0
              1999

                     2000

                             2001
                                    2002
                                           2003
                                                   2004

                                                          2005

                                                                 2006
                                                                        2007

                                                                               2008

                                                                                      2009




                                                                                                           Investments (LHS)            Growth (RHS)

Source: CEIC, DBS Vickers                                                                    Source: CEIC , DBS Vickers



Port investments have sped up since 2003. China port sector                                    The planning also aims to construct eight efficient
has experienced several development phases after PRC was                                       transportation systems. The focus will be on the large-scale
founded in 1949. Although the sector also achieved rapid                                       and deep-water transportation systems for coal, crude oil, and
development in the earlier phases, investment in ports really                                  iron ore in the mid-term to facilitate the rising appetite for
surged from 2000 (especially after joining the WTO at end-                                     raw materials and the “north coal goes to south” project.
2001), driven by booming international trade. Exports and
imports jumped over 35% yoy in 2003 and maintained a                                           Port IPO speeds up in 2010. Since Shenzhen Chiwan Wharf
growth rate in excess of 20% during 2004-2007. As ports’                                       went listing on Shenzhen Stock Exchange in 1993, there are a
capacity could not catch up with the rapid growth in                                           total of 19 port operators listed on A-share and H-share
international trade, some terminals had to operate beyond                                      markets. Most of these stemmed from local port groups,
their capacity, which then triggered huge investments in port                                  other than the two port conglomerates. We also found that
infrastructure since 2003. By end-2009, total number of                                        several port operators are seeking domestic listing and expect
berths along the coastal line amounted to 5,320, which is                                      to be listed in 2010 (including DLP’s A-share IPO). All the
more than four times the number in 1991.                                                       leading coastal ports will then be listed except for Guangzhou
                                                                                               Port Group which has not figured out a detailed timetable due
Although foreign trade slumped 14% yoy in 2009, fixed asset                                    to restructuring problems. As all the major ports have
investments on waterway infrastructure nationwide mounted                                      completed capital financing, we expect a slowdown in major
38%, driven by government’s stimulus package.                                                  port investments thereafter.

5 port clusters and 8 transportation systems planned. In order                                 Looking ahead, we expect China ports will continue to grow,
to optimize the coastal layout and avoid irrational competition,                               due to : i) the recovery of the global economy and China’s
government issued a national plan for the coastal ports, with                                  exports, and ii) rising imports driven by the growing demand
a focus on the framework of five port clusters and eight                                       for imported raw materials and high-end products. However,
transportation systems (see Appendix 3). The five port clusters                                the growth rate may not be the same level as the numbers
are positioned to serve different hinterlands. Leading and                                     previously, due to the already large base. On the supply side,
comprehensive ports are identified for each region, with                                       we expect port investments to slow down as there is
support from the surrounding satellite or feeder ports.                                        overcapacity and major ports should be listed by this year. As
                                                                                               a result, we expect a matured port sector in China, which
                                                                                               should provide stable growth over the medium to long term.




                                                                                                                                                             Page 5
Industry Focus
China Port Sector




Proposed Ports IPO

 Port Operators                     Process                                                 Shareholding structure (pre-IPO)

 Tangshan Port Group Co. Ltd.       Listed in A-share market on Jul05, 2010, with           Tangshan Port Inv 66.41%, Hebei
                                    200m shares issued with IPO price of RMB8.2,     Construction Inv 14.27% ,Beijing Jingtai
                                    implying 33x diluted FY09 P/E                     Inv 12.5%, Guofu Inv 2.36%, Tangshan
                                                                                    Construction Inv 2.34%, and SDIC 2.13%.
 Qinhuangdao Port Co., Ltd.         Restructured and established in Mar 2008,          Qinhuangdao Port Group and other 9
                                    and expected IPO in 2010                                                   promoters
 Qingdao Port (Group) Co., Ltd.     Submitted A-share IPO application in early                                           NA
                                    2008, and IPO expected in 2010
 Ningbo Port Co., Ltd.              Restructured and established in Mar 2008,           Ningbo Port Group 90%, CHMI 5.4%,
                                    and expected listing on both A and H markets                               others 4.6%
                                    in 2010
 Guangzhou Port Group Co., Ltd.     Restructuring, no timetable yet                                                      NA
 Zhanjiang Port (Group) Co., Ltd.   Restructured in early 2009, and expected IPO        Zhanjiang SASAC 50%, CMHI 40.2%,
                                    in 2010                                                   Baosteel 8%, and others 1.8%
 Yantai Port                        Possible IPO in the next three years            Yantai Port Group 67.56%, Baosteel 20%,
                                                                                                      CSCL 10%, SDIC 2.44%

Source: DBS Vickers




Page 6
                                                                                                                                                                                                               Industry Focus
                                                                                                                                                                                                         China Port Sector




Demand side: leveraged on the recovery of economy and                                                             World trade volume is expected to grow 9.0% and 6.3% in
trade                                                                                                             2010 and 2011 respectively.

                                                                                                                  Sooner than expected pick-up in foreign trade. China’s
Recovery of major economies. Major economies have been on
                                                                                                                  imports rebounded earlier than exports as a result of the
a recovery track for the past several months, as evidenced by
                                                                                                                  stimulus package in Oct 2009. As confidence of global
improved economic indicators. IMF renewed its expectation
                                                                                                                  economic recovery has strengthened, we saw exports picking
and has forecast 4.6% GDP growth (revised in Jul from 4.2%
                                                                                                                  up earlier than expected since Dec 2009. As a result, port
in Apr 2010) for the world in 2010, and 4.3% in 2011.
                                                                                                                  climate index has improved to a high level in the past two
Developing Asia (especially China) will drive the recovery, with
                                                                                                                  years.
an anticipated 9.2% growth (10.5% for China) in 2010.

GDP Growth Forecast (%)

                                   USA                              UK                     Japan               Euro                  China                            India                              Russia                          Brazil

 2011E                                2.9                           2.1                             1.8         1.3                       9.6                                8.4                              4.1                             4.2
 2010E                                3.3                           1.2                             2.4         1.0                      10.5                                9.4                              4.3                             7.1
 2009                               -2.4                          -4.9                              -5.2       -4.1                       9.1                                5.7                            -7.9                              -0.2
 2008                                 0.4                           0.5                             -1.2        0.6                       9.6                                6.4                              5.6                             5.1

Source: IMF, DBS Vickers




China Export & Import Index                                                                                     China Port Climate Index (Sep2006=100)


 PY=100                                                                                                          Sep 06 = 100
 210                                                                                                             150
 190
                                                                                                                 140
 170
 150                                                                                                             130
 130                                                                                                             120
 110
                                                                                                                 110
  90
  70                                                                                                             100

  50                                                                                                              90
        Jan-05

                 Jul-05

                          Jan-06

                                   Jul-06

                                             Jan-07

                                                      Jul-07

                                                               Jan-08

                                                                        Jul-08

                                                                                  Jan-09

                                                                                           Jul-09

                                                                                                      Jan-10




                                                                                                                  80
                                                                                                                                Aug-07




                                                                                                                                                                    Aug-08




                                                                                                                                                                                                          Aug-09
                                                                                                                       May-07


                                                                                                                                         Nov-07
                                                                                                                                                  Feb-08
                                                                                                                                                           May-08


                                                                                                                                                                              Nov-08
                                                                                                                                                                                       Feb-09
                                                                                                                                                                                                May-09


                                                                                                                                                                                                                   Nov-09
                                                                                                                                                                                                                            Feb-10
                                                                                                                                                                                                                                     May-10




                                            Export                               Import

Source: CEIC, DBS Vickers                                                                                       Source: CEIC, DBS Vickers,


                                                                                                                  Sciences), driven by pent-up consumer demand and reduced
Exports driving container throughput growth. As most of
                                                                                                                  trade barriers. In our view, this is achievable as exports for
China’s exported products are containerised, port container
                                                                                                                  1H10 grew 35% yoy, due partially to the low base last year.
throughput is mainly driven by exports.
                                                                                                                  Exports in Jun 2010 hit a new record high.
As the world’s factory, China’s exports mainly head towards
                                                                                                                  We expect container flow in China’s coastal ports to resume
developed nations, as evidenced by the high correlation
                                                                                                                  double digit growth in 2010. In 1H10, container throughput
between China’s new export orders and consumer confidence
                                                                                                                  in coastal China increased 22% yoy, driven by the recovery of
in developed nations. In 2010, China’s exports are estimated
                                                                                                                  exports.
to grow 17-18% (forecasted by Chinese Academy of Social




                                                                                                                                                                                                                                              Page 7
Industry Focus
China Port Sector




Correlation between US Consumer Confidence Index and                                                                                    Correlation between EU Consumer Confidence Indicator
CN PMI New Export Orders                                                                                                                and CN PMI New Export Orders

 120                                                                                                                             70        0                                                                                                   70

                                                                                                                                 60       -5                                                                                                   60
 100
                                                                                                                                 50      -10                                                                                                   50
  80
                                                                                                                                         -15                                                                                                   40
                                                                                                                                 40
  60                                                                                                                                     -20                                                                                                   30
                                                                                                                                 30                            Correlation: 0.73
  40                                                                                                                                     -25                                                                                                   20
                           Correlation: 0.66                                                                                     20
                                                                                                                                         -30                                                                                                   10
  20                                                                                                                             10      -35                                                                                                   0




                                                                                                                                               Jan-05



                                                                                                                                                                 Jan-06



                                                                                                                                                                                  Jan-07



                                                                                                                                                                                                  Jan-08



                                                                                                                                                                                                                    Jan-09



                                                                                                                                                                                                                                    Jan-10
    0                                          0
     Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
                                    US consumer confidence index (LHS)                                                                                            EU consumer confidence indicator (LHS)
                                    CN PMI new export order (RHS)                                                                                                 CN PMI new export order (RHS)

Source: CEIC, DBS Vickers                                                                                                               Source: CEIC , DBS Vickers


China Export & Import Growth (Monthly)                                                                                                  China Export & Import Growth (Annually)


  %
  80                                                                                                                                      50%
                                                                                                                                                                                                           Correlation: 0.90
  60                                                                                                                                      40%
                                                                                                                                          30%
  40
                                                                                                                                          20%
  20
                                                                                                                                          10%
   0
                                                                                                                                           0%
 -20
                                                                                                                                         -10%
 -40
                           Jul-09
                                    Aug-09
                                             Sep-09
                                                      Oct-09
                                                               Nov-09
                                                                        Dec-09
                                                                                 Jan-10
                                                                                          Feb-10


                                                                                                             Apr-10
                                                                                                                      May-10
                                                                                                                               Jun-10
         May-09
                  Jun-09




                                                                                                    Mar-10




                                                                                                                                         -20%
                                                                                                                                                        1999

                                                                                                                                                                 2000

                                                                                                                                                                          2001

                                                                                                                                                                                  2002

                                                                                                                                                                                           2003

                                                                                                                                                                                                  2004

                                                                                                                                                                                                             2005

                                                                                                                                                                                                                    2006

                                                                                                                                                                                                                             2007

                                                                                                                                                                                                                                     2008

                                                                                                                                                                                                                                             2009




                                                  Export                                           Import                                                                        Export                              Import

Source: CEIC, DBS Vickers                                                                                                               Source: CEIC, DBS Vickers,




Imports driving non-containerised cargo throughput. A large                                                                                    •        High demand from infrastructure construction and
proportion of China’s exports are assembling and processing                                                                                             increasing appetite for imported energy and raw
imported materials; hence, China’s imports are usually closely                                                                                          materials as seen in all developing nations;
correlated with exports. Therefore, a recovery in exports will
directly lead to higher imports.                                                                                                               •        Increasing demand for imported high-end products,
                                                                                                                                                        driven by rising income levels and a burgeoning middle
In addition, China’s imports will also be driven by:                                                                                                    class;

                                                                                                                                               •        Policy bias encouraging domestic consumer spending




Page 8
                                                                                                                   Industry Focus
                                                                                                               China Port Sector



World Trade Outlook (Yoy %)                                          Commodity Consumption in Developing Nations

                             2008      2009      2010E      2011E                       Market share in emerging markets (%)
 World total                   2.8     -10.7        7.0        6.1    Crude Oil
 Imports                                                                    1993                                         43.1
 Advanced economies            0.6     -12.0        5.4        4.6          2002                                         45.8
                                                                            2008                                         51.8
 Developing economies          8.5      -8.4        9.7        8.2
                                                                      Aluminum
 Exports
                                                                            1993                                         32.4
 Advanced economies            1.9     -11.7        6.6        5.0
                                                                            2002                                         42.8
 Developing economies          4.0      -8.2        8.3        8.4
                                                                            2008                                         59.2
                                                                      Copper
                                                                            1993                                         35.2
                                                                            2002                                         49.3
                                                                            2008                                         61.7

Source: IMF, DBS Vickers                                             Source: IMF, DBS Vickers


                                                                       the WTO in 2001. Since 2005, China began to establish
Removal of trade barriers. At the beginning of this year, China
                                                                       bonded ports to consolidate bonded areas and ports, aiming
and the Association of Southeast Asian Nations (ASEAN)
                                                                       to for international free trade ports. Currently, there are seven
established world's largest free trade area of developing
                                                                       bonded ports including Shanghai Yangshan, Tianjin Dongjiang,
countries with a combined population of 1.8bn. Most tariffs
                                                                       Dalian Dayaowan, Hainan Yangpu, Ningbo Meishan, Guangxi
on goods traded between China and the 10 members of
                                                                       Qinzhou, and Xiamen Haicang. Shanghai is expected to be the
ASEAN were cut down to zero or near zero from > 10%. We
                                                                       first free trade port in China by 2020, which may attract more
believe that the removal of tariffs will greatly stimulate trade
                                                                       cargo and transhipments.
between China and South Asia. For 1H10, bilateral trade
between two regions surged 55% yoy.
                                                                       Imminent earnings recovery ahead. We expect total
                                                                       throughput in coastal ports in China to grow at double digit
Cross-straits relationship has improved significantly since 2008,
                                                                       rates per annum over the next two years. Thus, earnings for
followed by the tie-ups in post, transportation, and businesses
                                                                       China coastal port operators will be driven by:
between mainland and Taiwan (Three Direct Link). The long-
awaited Economic Cooperation Framework Agreement (ECFA)
                                                                          •    the rebound in international trade and port handling
was signed on Jun29, 2010, which will remove tariffs on 539
                                                                               businesses;
Taiwan exports products to the mainland and 267 mainland
exports products to Taiwan within two years. ECFA should be               •    higher handling tariffs due to the lower proportion of
effective after approved by Taiwan legislature. For 1H10,                      empty containers and increasing proportion of foreign
cross-straits trade jumped 61% yoy. In addition, South Korea                   trade;
together with China and Japan are also conducting a
feasibility study on a free trade agreement among the three               •    improving port-related operations as well as container
Northeast Asian countries.                                                     leasing and manufacturing businesses; and

Bonded ports - another growth driver. Since bonded areas                  •    benefit from high operating leverage due to high
were established in 1995, trade flows within the bonded areas                  initial inputs and high depreciation and amortisation
accelerated due to easier custom clearance and favourable                      expenses.
tariff policies. These advantages weakened after China joined




                                                                                                                                 Page 9
Industry Focus
China Port Sector




Supply side: overcapacity and competition?                               Generally, bulk ports are concentrated in northern China,
                                                                         whereas container ports are in southern China, thus, the
Specialized regional terminals. Overcapacity concerns have               industry phrase “south container, north bulk”. This is because
arisen resulting from the massive port investments made in               processing businesses are concentrated in the Pearl River Delta
the previous years. However, we estimate that container                  Region and Yangtze River Delta Region, while northern
terminals capacity is ahead of throughput on a nationwide                territories provide grains and natural resources.
basis, while investment in much-needed non-containerised
terminals have lagged behind demand.

Regional Position and Planning

                Planning & drivers                                   Hinterland                           Industry cluster

 Bohai Rim Region

                Revitalization planning for the traditional                                               Heavy machinery, auto & parts,
                                                                     Northeastern China, East Inner
 Dalian         industrial base, Liaoning Coastal Economic                                                petrochem, grain,
                                                                     Mongolia
                Belt Planning                                                                             pharmaceuticals, shipbuilding

                Tianjin Binhai New Area Planning (national
                development strategy following the Shenzhen          Beijing, Tianjin, Northern and       Auto & parts, consumer
 Tianjin
                Special Economic Zone and Shanghai Pudong            Northwestern China                   electronics, coal & minerals
                New Area)

                                                                     Shandong Peninsular, and             Auto & parts, home appliance,
 Qingdao        NA
                                                                     western extension                    petrochem, coal & minerals



 Yangtze River Delta Region
               Positioning as an international financial &           Jiangsu, Yangtze River Delta         Auto & parts, textile, home
 Shanghai
               shipping hub, 2010 Expo, Disneyland                   Region, and along Yangtze River      appliances
                                                                     Zhejiang, and along Yangtze          Petrochem, auto & parts,
 Ningbo         NA
                                                                     River                                textile, home appliances

 Southeast Coastal Area, Mainland-Taiwan Strait
                Three Direct Links, Planning for the modern                                               Petrochem, appeals and
 Xiamen         industrial base in the west coast of Taiwan          Fujian, Jiangxi, and Hunan           footwear, F&B, consumer
                Straits                                                                                   electronics

 Pearl River Delta Region
 Shenzhen       Planning for the Pan-Pearl Delta Region
                                                                                                          Consumer electronics, textile,
 Guangzhou (2008-2020), poised to the advanced industrial            Guangdong, Southern China
                                                                                                          furniture, toys
 Hongkong       and modern service base


 Southwest Coastal Area
 Zhanjiang    Planning for Guangxi Northern Gulf Economic            Guangxi, Western China               Agriculture & dairy, minerals
              Zone, ASEAN free trade, Development of
              Western Region

Source: State Council, NDRC, DBS Vickers


                                                                         in that port handling charges only account for a small
Container terminals: regional differences. Generally, we see
                                                                         percentage of the whole value chain of marine logistics. The
different ports serving quite different hinterlands with little or
                                                                         difference in pricing along ports in coastal China is the result
no overlap. In addition, price competition between different
                                                                         of multiple factors including hinterland connections, port
ports may not be feasible especially for long-distance voyages
                                                                         handling efficiency, custom clearance efficiency, and etc.




Page 10
                                                                                                                            Industry Focus
                                                                                                                      China Port Sector



Thus, the ports may not directly compete with each other.                  expected to drop to below 70% in 2010 and 2011. We also
However, competition may arise between the different                       see overcapacity in Shenzhen and Tianjin ports.
operators in the individual ports.
                                                                           We note that container terminal investments in the major
Although container terminals are over supplied on a                        container coastal port have either been cancelled or deferred.
nationwide basis, the outlook for individual ports is mixed. We            This is positive. We project 8-12% p.a. growth in container
see plenty of capacity added in Xiamen hub. Although we                    throughput for the top 8 container ports in China for the next
project 12% p.a. throughput growth factoring the booming                   two years. Coupled with recovery of world trade, overcapacity
cross-straits trade, utilisation rate in the port of Xiamen is             pressure could be alleviated in 2012 or 2013.

China’s Top 10 Hubs in terms of container throughput

 (th TEU)                         2001       2002      2003       2004      2005        2006       2007       2008          2009     CAGR

 Shanghai                        6,330      8,613    11,282     14,557    18,084       21,710     26,150    27,980      25,002       19%
 Shenzhen                        5,079      7,614    10,615     13,615    16,197       18,469     21,099    21,400      18,250       17%
 Guangzhou                       1,628      2,180     2,762      3,308     4,683        6,600      9,260    11,001      11,190       27%
 Ningbo                          1,209      1,853     2,763      4,006     5,208        7,068      9,430    11,226      10,503       31%
 Qingdao                         2,639      3,410     4,239      5,140     6,307        7,702      9,462    10,320      10,260       18%
 Tianjin                         2,011      2,410     3,015      3,814     4,801        5,950      7,103     8,500       8,700       20%
 Xiamen                          1,295      1,750     2,331      2,872     3,342        4,019      4,627     5,035       4,680       17%
 Dalian                          1,198      1,350     1,679      2,211     2,655        3,212      3,813     4,503       4,552       18%
 Lianyungang                       156        205       301        502     1,005        1,302      2,001     3,001       3,021       45%
 Yingkou                           211        301       403        583       788        1,011      1,889     2,030       2,537       36%
 Total Coastal Mainland         24,700     33,760    44,550     56,620    70,020       85,790    104,700   117,006     120,820       22%
 HK                             17,827     19,146    20,449     21,985    22,600       23,538     23,998    24,493      20,816        2%

Source: CEIC, China Ports & Harbours Association, DBS Vickers



Container throughput and utilisation rates in the major coastal ports

                         Throughput (mn TEU)                           Throughput growth                          Utilization rate (%)
                     2008    2009 2010E     2011E               2008      2009 2010E            2011E      2008       2009 2010E 2011E
 Bohai Rim Region
 Dalian                4.5       4.6       4.9       5.4        18%         1%           8%       10%      91%       90%       97%     81%
 Tianjin               8.5       8.7       9.7      10.9        20%         2%          12%       12%      77%       79%       76%     75%
 Qingdao              10.3      10.3      11.1      12.2         9%        -1%           8%       10%      119%      93%       88%     97%
 Yangtze River Delta
 Shanghai             28.0      25.0      27.5      29.7         7%       -11%          10%        8%      128%      115%     106%    115%
 Ningbo               11.2      10.5      11.6      12.5        19%        -6%          10%        8%      110%      94%       79%     80%
 Southwest Coast
 Xiamen                5.0       4.7       5.2       5.9         9%        -7%          12%       12%      83%       77%       61%     68%
 Pearl River Delta
 Shenzhen             21.4      18.3      20.4      22.1         1%       -15%          12%        8%      86%       66%       71%     75%
 Guangzhou            11.0      11.2      12.5      14.0        19%         2%          12%       12%      105%      86%       96%    108%

Source: CEIC, China Ports & Harbours Association, Ministry of Transport, DBS Vickers




                                                                                                                                      Page 11
Industry Focus
China Port Sector



 Container Throughput Growth in Major Coastal Ports
                               Dalian            Tianjin             Qingdao         Shanghai            Ningbo          Xiamen          Shenzhen        Guangzhou

   Jan 2010                      9%                   21%                     10%        15%               22%                  23%            10%                   60%
   Feb 2010                     34%                    9%                      8%        27%               47%                  35%            53%                   22%
   Mar 2010                     18%                    8%                      9%         6%                9%                  27%            23%                   16%
   Apr 2010                     21%                    6%                     11%        20%               45%                  34%            31%                   17%
   May 2010                     14%                   11%                     16%        24%               52%                  28%            27%                   10%
   Jun 2010                     10%                   23%                     15%        22%               39%                  37%            37%                    1%
   Ytd                          17%                   13%                     11%        19%               34%                  28%            29%                   17%

 Source: CEIC, DBS Vickers



                                                                                          52% in 2009, surpassing 50% for the first time. As China
Coal, petroleum and metal ore are the major non-
                                                                                          continues its industrialization trend and demand for motor
containerised cargo flows in the coastal ports in China, and
                                                                                          vehicles continues to rise, we expect crude oil imports to rise.
accounted for 83% of total cargo flows in 2008. Therefore,
                                                                                          In 1H10, crude oil imports rose 30% yoy. We project 10%
we will focus on non-containerised terminals for the above
                                                                                          p.a. growth in oil throughput for ports for the next two years.
cargo.
                                                                                          However, oil terminals may face overcapacity concerns in
Oil terminals: riding on the increasing consumption, but
                                                                                          southern China due to the accelerated investments in large-
overcapacity concerns emerging. With the economic growth,
                                                                                          scale crude berths.
China’s demand for energy and raw materials has surged
significantly. Import dependence on crude oil reached over

Crude oil consumption and import dependence                                             Rapid growth of crude oil consumption and auto sales

  mn mt                                                                                  50%
  450                                                                          60%
                                                                                         45%
  400
                                                                               50%       40%
  350
  300                                                                          40%       35%
  250                                                                                    30%
                                                                               30%
  200                                                                                    25%
  150                                                                          20%
                                                                                         20%
  100
                                                                               10%       15%
   50
    0                                                                          0%        10%
          2002

                 2003

                        2004

                                 2005

                                        2006

                                               2007

                                                       2008

                                                              2009

                                                                      2010E




                                                                                          5%
                                                                                          0%
                                                                                                  2002

                                                                                                           2003

                                                                                                                  2004

                                                                                                                         2005

                                                                                                                                 2006

                                                                                                                                        2007

                                                                                                                                               2008

                                                                                                                                                      2009

                                                                                                                                                             2010E




                        Apparent consumption (LHS)
                        Import reliance (RHS)
Source: CEIC, DBS Vickers                                                               Source: CEIC, DBS Vickers




Page 12
                                                                                                                                                                        Industry Focus
                                                                                                                                                                 China Port Sector




Petroleum-related throughput and utilisation rate in major coastal ports

                                         Throughput (mn mt)                                         Throughput growth                                    Utilization rate (%)
                             2008                2009      2010E          2011E              2008      2009    2010E           2011E             2008           2009       2010E       2011E
 Bohai Rim Region
 Dalian                          49                57             65             75           2%       15%           15%           15%           85%            98%            85%      98%
 Tianjin                         43                47             52             57          27%       10%           10%           10%           113%           125%           90%      99%
 Qingdao                          56               60             63             66          24%        8%           5%              5%          96%            104%           109%    115%
 Rizhao                          75               100           110           121            14%       33%           10%           10%           91%            102%           112%    123%
 Yangtze River Delta
 Shanghai                         24               23             23             23          32%       -2%           0%              0%          86%            76%            76%      76%
 Ningbo                          110              115           127           140             4%        5%           10%           10%           84%            84%            92%     101%
 Nanjing                         28                30             31             33          -14%       5%           5%              5%          64%            68%            71%      75%
 Pearl River Delta and Southwest Coast
 Guangzhou                       29                29             29             30          -11%       1%           1%              1%          93%            94%            94%      95%
 Zhanjiang                        19               20             23             26           -1%       6%           15%           15%           74%            78%            54%      62%
 Huizhou                         20                27             32             39           9%       35%           20%           20%           57%            76%            49%      33%
 Shenzhen                         14               13             13             13          21%       -5%           0%              0%          48%            46%            46%      46%
 Maoming                          13               13             13             13           8%       -2%           0%              0%          65%            63%            63%      63%

Source: China Ports Yearbook, DBS Vickers



Coal Consumption and Coal Port Handling                                                              Correlation between Coal and Electricity Consumption

 mn mt                                                                                                25%
 3,000                                                                                       35%
 2,500                                                                                       30%      20%                                           Correlation: 0.83

 2,000                                                                                       25%
                                                                                             20%      15%
 1,500
                                                                                             15%
 1,000                                                                                       10%      10%
   500                                                                                       5%
     0                                                                                       0%        5%
            1998
                   1999
                          2000

                                  2001
                                          2002
                                                  2003

                                                         2004
                                                                2005

                                                                       2006

                                                                              2007
                                                                                      2008




                                                                                                       0%
                                                                                                              1999

                                                                                                                     2000

                                                                                                                            2001

                                                                                                                                   2002

                                                                                                                                          2003

                                                                                                                                                  2004

                                                                                                                                                         2005

                                                                                                                                                                 2006

                                                                                                                                                                        2007

                                                                                                                                                                                2008




           Coal throughput in coastal ports (LHS)
           Coal consumption (LHS)
           Coal port handling as % of total consumption (RHS)                                                 Coal consumption                       Electricity consumption

Source: CEIC, DBS Vickers                                                                            Source: CEIC, DBS Vickers



                                                                                                       northern 7 ports) located in Tianjin, Hebei, Shandong and
Coal terminals: Tianjin-Hebei region is short on capacity. Coal
                                                                                                       Jiangsu provinces to facilitate “the northern coal goes to the
is the major source of energy used in China, accounting for
                                                                                                       southern area” movement.
69% of total energy consumption and 32% of port cargo
throughput in 2009. Although China is rich in coal reserves, it
                                                                                                       The three coal ports (Qinhuangdao, Tianjin, Huanghua) in the
became a net coal importer in 2009 due to the increasing
                                                                                                       Tianjin-Hebei region accounted for nearly 81% of total coal
demand for electricity and coal related chemicals. As Shanxi,
                                                                                                       throughput in the northern 7 ports in 2009. The actual
Shaanxi, Shandong and Inner Mongolia are the primary coal
                                                                                                       throughput in these three ports (except Tianjin) surpassed or
producers, there are seven major coal ports (known the




                                                                                                                                                                                       Page 13
Industry Focus
China Port Sector



has nearly reached the designed capacity over the past two                                      throughput in the northern 7 ports increased 16 % yoy in
years.                                                                                          5M10.

Previously, coal throughput in the northern 7 ports was at a                                    On the supply side, we see plenty of capacity to be added in
slower pace due to inefficient railway transportation. As                                       Caofeidian, which may dilute coal throughput in Tianjin Port.
government has approved huge investments on railway                                             Caofeidian Port is a natural deep-water port (25-30m) located
construction, we expect more sea-rail joint transportation of                                   northeast to Tianjin Port. Phase I with 50m mt coal capacity
coal in the northern 7 ports. With improving rail facilities, we                                started operations in 2009, another 50m mt is expected to
project coal throughput to grow10% p.a. for the next three                                      commence operation by 2010.
years due to the accelerating demand for electricity. Coal

Coal Throughput and Utilisation Rate in Northern 7 Ports

                                       Throughput (mn mt)                                     Throughput growth                                             Utilization rate (%)
                            2008           2009         2010E          2011E           2008      2009           2010E               2011E          2008           2009         2010E       2011E
 Qinhuangdao                     218            201            211            221       2%       -8%                  5%               5%          113%          104%          109%         97%
 Tianjin                         95             54             64             77        1%      -44%              20%                20%           88%            50%            60%        71%
 Huanghua                        78             78             86             95        -6%       1%              10%                10%           87%            87%            96%        105%
 Jingtang                        40             40             42             44       150%      -1%                  5%               5%          87%            86%            91%        95%
 Caofeidiao                      NA              9             28             55        NA        NA            200%                100%              NA          18%            28%        55%
 Qingdao                          2             11              13             14      -85%     472%              10%                10%           13%            76%            84%        92%
 Rizhao                          18             12             13             14        29%     -36%              10%                10%           67%            43%            27%        30%
 Lianyungang                      15              7              8              9       7%      -53%              10%                10%           88%            36%            39%        43%

Source: China Ports Yearbook, DBS Vickers




Imported Iron Ore Growth                                                                      Crude Steel Production Growth

  mn mt                                                                                         mn mt
  700                                                                                 45%       600                                                                                   35%
  600                                                                                 40%                                                                                             30%
                                                                                                500
                                                                                      35%
  500                                                                                                                                                                                 25%
                                                                                      30%       400
  400                                                                                 25%                                                                                             20%
                                                                                                300
  300                                                                                 20%                                                                                             15%
                                                                                      15%       200
  200                                                                                                                                                                                 10%
                                                                                      10%
  100                                                                                           100                                                                                   5%
                                                                                      5%
    0                                                                                 0%          0                                                                                   0%
                                                                                                        1999
                                                                                                               2000

                                                                                                                      2001
                                                                                                                             2002

                                                                                                                                     2003

                                                                                                                                            2004
                                                                                                                                                   2005

                                                                                                                                                          2006
                                                                                                                                                                 2007

                                                                                                                                                                        2008
                                                                                                                                                                               2009
           2000

                   2001

                          2002

                                  2003

                                         2004

                                                 2005

                                                        2006

                                                                2007

                                                                       2008

                                                                               2009




                  Imported iron ore (LHS)                              Growth (RHS)                            Crude steel production                            Growth (RHS)


Source: CEIC, DBS Vickers                                                                     Source: CEIC, DBS Vickers



                                                                                                and the huge infrastructure investments in 2009. China’s iron
Metal ore terminals: rising steel consumption driven by fixed
                                                                                                ore consumption is expected grow strongly, driven by
asset investments. China also consumed more iron ore, with
                                                                                                increasing demand for the machinery and auto sectors and
its dependence of imported iron ore rising from 44% in 2002
                                                                                                the huge investments on the national railway network.
to 69% in 2009. This is primarily attributed to the
revitalization plans for the steel, machinery and auto sectors,




Page 14
                                                                                                                    Industry Focus
                                                                                                                China Port Sector



Over the past two years, metal ore throughput has already             For 2010 and 2011, we expect growth in iron ore throughput
surpassed designed capacity. We see only Qingdao adding               to slow down to 4-5% p.a. due to high port inventory levels,
20mt capacity in 2011. As such, the utilization rate is               the reduction in steel export rebates, and price hike of
expected to be maintain at over 100% in 2010 and 2011.                imported iron ore in 2010. The price of imported iron ore in
                                                                      the Chinese market surged 40% year to date.

Metal Ore Throughput and Utilisation Rates in Major Coastal Ports

                             Throughput (mn mt)                     Throughput growth                       Utilization rate (%)
                     2008       2009    2010E     2011E      2008      2009    2010E     2011E       2008       2009    2010E      2011E
 Bohai Rim Region
 Qingdao                95       101        105      109     17%        6%        4%         4%     232%       246%      255%      179%
 Rizhao                 82       105        110      114      8%       28%        4%         4%     143%       183%      191%      198%
 Tianjin                64        88         92       95     23%       38%        4%         4%     128%       176%      183%      190%
 Tangshan               48        87         90       94     26%       80%        4%         4%     113%       204%      124%      129%
 Dalian                 14        29         30       32     18%      109%        5%         5%      60%       126%      132%      139%
 Yingkou                28        31         32       34    364%        8%        5%         5%     116%       124%      131%      137%
 Yangtze River Delta
 Shanghai               61        58         58       58      1%        -5%       0%         0%      97%       110%      110%      110%
 Suzhou                 35        45        47        49      -1%      30%        4%         4%      58%        75%       78%        81%
 Nantong                35        41        42        44      -3%      17%        4%         4%      89%       105%      109%      113%
 Ningbo                134       139        144      150     18%        4%        4%         4%     143%       112%      116%      121%
 Southwest Coast
 Zhanjiang              26        33        35        36     42%       29%        5%         5%     196%       254%      267%      280%
 Fangcheng              15        15        16        17      0%        0%        4%         4%     153%       153%      130%      136%

Source: China Ports Yearbook, DBS Vickers



Beyond the marine port – opportunity from inter-modal                 Ministry of Transport and Ministry of Railway; iii)
transportation                                                        underdeveloped inland ports and complicated customs
                                                                      clearance procedures; and iv) low containerisation rate in
Integrated inland network and marine network. Port                    railway transport. Currently, sea-rail joint transportation is well
operators are speeding up to set up hinterland connections            developed only in the coastal ports in the northern region,
through inter-modal rail transportation. The advantages for           benefiting from the operation of Eurasia Continent Bridge.
rail transportation are: 1) cost savings for long distance            Sea-rail joint transportation proportion in Dalian and Yingkou
transport; and 2) time savings as railway is faster and less          reached 5% in 2009, whereas the figure is less than 1% in
affected by the weather. Leading ports in the US and Europe           Shanghai, Ningbo, Guangzhou and Shenzhen.
usually have a well- developed or are developing sea-rail joint
                                                                      More business supported by the booming railway investments
transportation systems.
                                                                      and inland port construction. China accelerated its railway
Inter-modal transportation encouraged by the government.              investments in 2009. According to the national planning for
Early last year, the logistics industry was included in the ten       railway development, the government plans to invest more
pillar industries under national bailout plans. The key project       than RMB2tn over 2010 to 2012, adding 240k km of railway
of the revitalization plan for the logistics industry is the          lines. 60% of newly added railway was built for cargo
construction of inter-modal transportation systems, inland            transport. The planning also aims to set up 18 railway
ports and inland bonded areas to provide a “one-stop” service         container connection hubs across the nation (Urumchi,
and improve customs clearance efficiency. Efforts will be             Lanzhou, Xi’an, Chengdu, Chongqing, Kunming, Zhengzhou,
stepped up put on the construction of inland ports to                 Wuhan, Harbin, Shenyang, Dalian, Beijing, Tianjin, Qingdao,
implement sea-rail joint transportation.                              Shanghai, Ningbo, Guangzhou, Shenzhen). In addition, China
                                                                      is also setting up more inland ports since the establishment of
Slow railway development was in the past. Sea-rail joint              the first inland port in Beijing in 2002. We believe all these will
transportation in China developed slowly due to: i) slow pace         bring more business for coastal ports, due to the extended
of railway development; ii) poor coordination between the             hinterland and improved customs clearance efficiency.




                                                                                                                                   Page 15
Industry Focus
China Port Sector




Modal Split, Sea-rail Joint Proportion (2008)                          Sea-rail Joint Proportion in China (2009)


 30%                                                                    6%

 25%                                                                    5%

 20%                                                                    4%

                                                                        3%
 15%
                                                                        2%
 10%
                                                                        1%
  5%
                                                                        0%




                                                                                                                 SIPG, port of
                                                                                  Port of Dalian




                                                                                                   Lianyungang




                                                                                                                                 Ningbo



                                                                                                                                           Guangzhou
                                                                                                                                 Port of
  0%




                                                                                                                   Shanghai




                                                                                                                                             Port of
          Port of Los




                                                           Rotterdam
                                     Hamburg



                                                Antwerp
                        New Jersey




                                                                                                      Port of
                                                 Port of
           Angeles




                                      Port of
                          Port of




                                                            Port of




Source: Company, DBS Vickers                                           Source: CEIC, China Ports & Harbours Association, DBS Vickers




Page 16
                                                                                                                                               Industry Focus
                                                                                                                                          China Port Sector




Risks                                                                                  and Spain. Therefore, China’s export exposure to these
                                                                                       countries is low. But, the debt crisis did affect the Euro, which
Ongoing EU debt crisis. The sovereign debt crisis in the                               has depreciated 13% against RMB year to date. However, we
European Union may affect the recovery of China’s exports.                             saw the impact on China’s exports is minimal and China’s
However, only 19.6% of China exports went to the EU in                                 exports to EU sped up in May 2010. Meanwhile, China’s
2009 and only 3.5% of China products (in value terms) are                              imports from EU surged in Feb2010 and maintained at a high
exported to the PIIGS including Portugal, Ireland, Italy, Greece                       level, due to a low Euro.




China Export Breakdown by Region (2009)                                              China Import Breakdown by Region (2009)


                                                     Africa                                                                                    Africa
                                                      4%           Europe                                                                       4%
                                                                  (Non-EU)                                                                              Europe
                                                                     2%                                                                                (Non-EU)
                                                                                          Asia
        Asia                                                                                                                                              3%
                                                                                          61%
        47%
                                                                         Latin                                                                              Latin
                                                                        America                                                                            America
                                                                          5%                                                                                 6%

                                                                         North                                                                         North
                                                                        America                                                                       America
                                                                         20%                                                  EU                        9%
                                         EU                                                                                  13%
                                        20%                                                                                                    Oceania
                                                            Oceania
                                                                                                                                                 4%
                                                              2%

Source: CEIC, DBS Vickers                                                            Source: CEIC, DBS Vickers




China’s monthly export to the EU (US$ bn)                                            China’s monthly imports from EU (US$ bn)


    US$bn                                                                                US$bn
    30                                                                                   17
    28
    26                                                                                   15
    24                                                                                   13
    22
    20                                                                                   11
    18
    16                                                                                    9
    14
                                                                                          7
    12
    10                                                                                    5
                      Mar

                            Apr




                                                                  Oct
                                               Jul




                                                                               Dec
          Jan

                Feb




                                         Jun



                                                      Aug
                                                            Sep



                                                                         Nov
                                  May




                                                                                                           Mar

                                                                                                                 Apr




                                                                                                                                                     Oct
                                                                                                                                   Jul




                                                                                                                                                                   Dec
                                                                                               Jan

                                                                                                     Feb




                                                                                                                             Jun



                                                                                                                                         Aug
                                                                                                                                               Sep



                                                                                                                                                             Nov
                                                                                                                       May




                 2007               2008                2009               2010                        2007              2008              2009                2010

Source: CEIC, DBS Vickers                                                            Source: CEIC, DBS Vickers




                                                                                                                                                                   Page 17
Industry Focus
China Port Sector



                                                                    RMB6.50/US$ by end-2011. The impact is mixed as RMB
Rising trade friction. About 19 countries or regions have
                                                                    appreciation may depress China’s exports, but could also
carried out over 116 investigations into the trades with China,
                                                                    increase imports as incomes grow in China. In our view, the
with a total value of over US$12.7bn in 2009. More than 20
                                                                    impact on the southern ports is greater as they are export-
antidumping measures have been implemented by the US, EU,
                                                                    driven, while the impact on northern ports may be minimal as
South America, and South Asia since 2009. The sanctions
                                                                    they usually handle imported raw materials and domestic
concentrated on steel-related products, petro-chemical
                                                                    containers.
products, and shoes. In return, China also accordingly
implemented a series of antidumping measures. Related
                                                                    However, we think port operators may not be significantly
manufacturers/exporters or consumers/importers and port
                                                                    affected by the RMB appreciation. Since 21 Jul 2005, when
operators will be affected by these sanctions.
                                                                    China first announced the reform of the RMB exchange rate
                                                                    regime with an immediate 2% appreciation, CMHI continued
RMB appreciation. On Jun 18, 2010, the central bank –
                                                                    to outperform the HSI Index for the rest of 2005. CP’s
People’s Bank of China - announced that it will reform RMB
                                                                    underperformance may have been attributed to the listing of
exchange rate regime with reference to a basket of currencies.
                                                                    its parent in Jun 2005, as investors preferred its parent given
Our economics team expects RMB to appreciate slightly from
                                                                    its higher liquidity and its integrated value chain.
RMB6.83/US$ to RMB6.69/US$ by end-2010, and to



Market Performance after RMB’s 2% Appreciation on Jul 21, 2005 (Jul 15’s Closing = 100)


  20%
  15%
  10%
   5%
   0%
  -5%
 -10%
 -15%
 -20%
 -25%
    Jul-05          Aug-05           Sep-05       Oct-05          Nov-05       Dec-05
                                 HSI Index              CMHI                 CP

Source: Bloomberg, DBS Vickers




Page 18
                                                                                                                       Industry Focus
                                                                                                                   China Port Sector




Peer group comparison


Business Model

 Port conglomerates
                 (i) More like a holding company with several port groups, (ii) usually has a controlling stake in the terminals
 CMHI
                 invested; (iii) other investments include logistic park, airport and container manufacturing companies.
                 (i) Created by the largest shipping liner in China; (ii) focus on container terminal portfolio in China with oversea
 CP
                 coverage as well; (iii) also engages in container leasing and manufacturing businesses.
 Pure plays
                 (i) Operating mainly oil terminals; (ii) operates container terminals allied with shipping liners and international
 DLP
                 port operators; (iii) plays a key role in consolidating coastal ports in Liaoning province.
 TPD             (i) Both container and non-container terminal assets; (ii) consolidating terminal assets in the port of Tianjin.
 XIP             Mixed container and non-container terminal assets

Source: DBS Vickers



                                                                        acquisitions have built up a solid platform for future M&A
There are five port operators including 2 port conglomerates
                                                                        opportunities.
and 3 pure plays listed on the main board of the HK market.
CMHI and CP are the two port conglomerates with quite
                                                                        CP - container carrier-related operator. CP was created by one
different business models.
                                                                        of the largest shipping liners in China – the COSCO group.
                                                                        The rationale for this is that container carrier- related port
CMHI - more than a financial investor. CMHI was previously a
                                                                        operators can secure a good base-load from their customers.
stevedoring company starting business in the Shenzhen area.
                                                                        In addition, major container carriers have established three
After a series of acquisitions and divestments, it now holds
                                                                        alliances. Port operators may also benefit from the business
several port groups listed or pending listing in the A-share
                                                                        bought by the associated shipping lines’ alliance members.
market. More than an investor, CHMI also acts as a
                                                                        Shipping liner’s port operations are increasing market share
coordinator in the Pearl River Delta region to manage the
                                                                        and moving up the list of global container operators. As
competition. CMHI also actively enhances cooperation
                                                                        compared to CMHI, CP invested in individual terminals instead
between Shanghai Int’l Port Group and Ningbo Port Company
                                                                        of port groups. Container terminals is the focus, however, it
in the Yangtze River Delta region. It ventured into the terminal
                                                                        has begun to invest on bulk terminals to enhance its port
business in Vietnam to grasp opportunities arising from the
                                                                        portfolio.
development of foreign trade in Vietnam and free trade
between ASEAN countries and China. Its successful



Major Port Conglomerates

                         Business style                                    Major operators
                         Created by shipping liners                        APMT, CP, CSCL
 Vertical integration
                         Complementary business of shipping liners         Evergreen, MSC, APL, Hanjin, NYK, CMA-CGM, OOCL
 Horizontal              Stems from local port authorities                 PSA. DPW, HHLA, SIPG
 consolidation           Previously, a stevedoring company                 CMHI, MTL, HPH, Eurogate, SSA Marine, ICTSI

Source: DBS Vickers




                                                                                                                                    Page 19
Industry Focus
China Port Sector




World Shipping Liners - Top 20                                       Major Shipping Liners’ Alliances

 Rank       Operator                              TEU        Share    Rank     Operator                              TEU    Share
 1          APM-Maersk                       2,090,433      14.6%              CKYH Alliance
 2          Mediterranean Shg Co             1,688,778      11.8%         7    COSCO Container L.               526,001      3.7%
 3          CMA CGM Group                    1,112,967       7.8%        10    Hanjin Shipping                  461,087      3.2%
 4          APL                                589,622       4.1%        16    K Line                           319,841      2.2%
 5          Evergreen Line                     586,481       4.1%        17    Yang Ming Line                   315,798      2.2%
 6          Hapag-Lloyd                        566,518       4.0%                                             1,622,727     11.3%
 7          COSCO Container L.                 526,001       3.7%
                                                                               Grand Alliance
 8          CSAV Group                         506,999       3.5%
                                                                          6    Hapag-Lloyd                      566,518      4.0%
 9          CSCL                               462,941       3.2%
                                                                         12    NYK                              365,296      2.6%
 10         Hanjin Shipping                    461,087       3.2%
                                                                         13    OOCL                             350,690      2.5%
 11         MOL                                372,651       2.6%        23    MISC Berhad                       80,268      0.6%
 12         NYK                                365,296       2.6%                                             1,362,772      9.7%
 13         OOCL                               350,690       2.5%
 14         Hamburg Süd Group                  336,129       2.4%              New World Alliance
 15         Zim                                322,989       2.3%         4    APL                              589,622      4.1%
 16         K Line                             319,841        2.2%       11    MOL                              372,651      2.6%
 17         Yang Ming Line                     315,798       2.2%        18    Hyundai M.M.                     282,272      2.0%
 18         Hyundai M.M.                       282,272       2.0%                                             1,244,545      8.7%
 19         PIL (Pacific Int. Line)            236,194       1.7%
 20         UASC                               206,940       1.4%                                             4,230,044     29.7%
                                                            81.9%

Source: AXS-Alphaliner, Jul 2010                                     Source: AXS-Alphaliner, Jul 2010, DBS Vickers



                                                                       Xiamen hub. Two new terminals, established by its customers
The 3 pure plays also have different terminal portfolios,
                                                                       and the Haicang district government, will commence
besides their geographic differences.
                                                                       operations in 2011 adding 2.5m TEU capacity p.a. (almost
DLP - monopoly in Dalian and a defensive play. DLP focuses             equal to XIP’s current container handling capacity). We expect
on the oil terminal operation and operates a container                 future asset acquisitions from parent will enhance XIP’s
terminal through collaboration with shipping liners and                competitive edge.
international port operators. It plans to acquire dry bulk
                                                                       TPD - monopoly through a merger in Tianjin hub. Through its
terminal operations from its parent, currently in the proposal
                                                                       acquisition of A-listed Tianjin Port Company, it now has a
stage, which will enable it to expand its portfolio as well as
                                                                       monopoly in the port of Tianjin. National planning for Binhai
access a new financing platform for further port investments.
                                                                       area is expected to attract huge investments and cargos
Focusing on the crude oil business, the impact of the RMB
                                                                       through Tianjin hub. With favourable policies, the largest
appreciation on DLP will be lower compared to the other port
                                                                       bonded port is expected to drive throughput growth in the
plays or it may even have a positive impact. Impact from EU
                                                                       long run. However, TPD may face direct threats from
debt crisis is also minimal as its hinterland has little EU
                                                                       neighbouring ports in the Hebei province. Hebei Port Group
exposure.
                                                                       was established in Jul2009, with the intention to consolidate
XIP - no longer a monopoly in Xiamen hub. It mainly operates           port resources and construct a complex transport system in
container and bulk terminal businesses through its fully               coastal Hebei. In addition, several port operators in Hebei
owned subsidiaries, except for a JV with Hutchison Port                province are seeking IPO in the A-share market to fund the
Holdings. It will directly benefit from higher cross-strait trade      capex. The rise of port operators in Hebei province may dilute
due to its geographical proximity. However, we are still               the bulk business of TPD.
concerned regarding loss of its monopoly position in the




Page 20
                                                                                                                    Industry Focus
                                                                                                               China Port Sector




Revenue Breakdown (FY09)

                     Container handling          Dry bulk handling             Oil handling          Port-related     Non-port
 CMHI                                                           99%                                                      1%
 CP                                        34%                                       -                  66%               -
 DLP                           23%                       -                         54%                  23%              0%
 XIP                           30%                     6%                            -                  24%             40%
 TPD                           42%                     32%                           -                   2%             24%
 Enlarged TPD                              37%                                     2%                   11%             50%

Source: Company, DBS Vickers



Geographic Distribution of Port Operators’ Container Capacity

 Gross container capacity
                                                                                                     Southwest
                      Bohai Rim       Yangtze Delta    Southeast Coast           Pearl Delta                              Overseas
                                                                                                         Coast
 CMHI                     11.0%               46.5%                 0.6%              41.4%               0.6%
 CP                       34.4%               18.4%                 3.4%              31.7%                                  12.1%
 DLP                     100.0%
 XIP                                                               100.0%
 TPD                     100.0%

 Attributable container capacity
                                                                                                     Southwest
                      Bohai Rim       Yangtze Delta    Southeast Coast           Pearl Delta                              Overseas
                                                                                                         Coast
 CMHI                     12.7%               31.0%                 1.0%              54.6%               0.7%
 CP                       25.7%               16.4%                 9.4%              28.5%                                  19.9%
 DLP                     100.0%
 XIP                                                               100.0%
 TPD                     100.0%

Source: Company, DBS Vickers




Owning extensive port portfolios, two port conglomerates are           XIP should be a direct beneficiary of cross-strait economic pact
expected to fully exposed to recovering global trade, especially       and construction of economic zone in Fujian province.
the surge in China-world trade. With focus on Yangtze River            However, 40% of XIP’s revenue in FY09 came from low-
Delta River Delta region and Pearl River Delta region, CMHI            margin manufacture and trading businesses. This is why it has
should benefit from the rapid throughput growth in both                a relatively lower margin and ROE as compared to its peers.
regions.
                                                                       TPD is expected to benefit from the rise of Tianjin Binhai New
CP’s earnings should be more leveraged to ride on the                  Area. After the merge with its A-share peer – Tianjin Port Co.,
recovery, as its container leasing business has a high operating       it shifts its focus to non-containerised business, which should
leverage.                                                              benefit from the increasing demand of raw materials in China.
                                                                       However, its non-containerised business could like face irect
With focus on the imported crude oil business, DLP relies less         threats from neighbouring ports in the Hebei province.
on the peripheral demand as compared to its peers. In
addition, its geographic location enables it to benefit from the
North-Eastern revitalization plan.




                                                                                                                                 Page 21
Industry Focus
China Port Sector




Valuation                                                                 SOTP valuation method. As terminal operators usually have
                                                                          port-related and other businesses, it may not be appropriate
Discount to Asia-Pacific peers. The five port operators listed in         to apply the same methodology to value the different
H-share market are trading at an average of 14.5x FY10F P/E               businesses. We use DCF valuation for terminal business as it
and 1.2x FY10F P/BV, lower than Asia-Pacifc peers’ average of             captures the long-term value of the assets. For port-related or
19.9x and 1.9x, respectively. Given strong trade growth in                ancillary businesses, we apply a price multiple (forward P/E or
coastal China, we think the H-listed port operators are                   P/BV) metric as these businesses usually generate relatively
undervalued as compared to Asia-Pacific peers.                            stable earnings. We may use investment cost, market value or
                                                                          price multiple to value other businesses not directly related to
                                                                          terminal operating businesses.

Peers Valuation Table

                                                 Cur                               PE                   ROE                    PB
                                                Mkt
                                                           Px
 Company                           Ticker        Cap                PEG
                                                          Last             09Y    10Y     11Y    09Y    10Y     11Y    09Y    10Y    11Y
                                                (US$
                                                 m)
 H-share ports ^                                                    0.8    16.5   14.5    12.8    7.8    9.4    9.3     1.2    1.2     1.2
 China Merchants Holdings           144.HK       8,360    26.70     1.1    20.1   19.5    16.7   10.1    9.7   10.7     1.9    1.8     1.7
 COSCO Pacific                     1199.HK       3,419     9.80     0.3    16.5    9.6    11.0    6.5   10.6    8.5     1.0    0.9     0.9
 Dalian Port PDA                   2880.HK       1,216     3.23     0.9    13.5   12.3    10.5    9.3   10.1   11.4     1.2    1.2     1.1
 Xiamen Int'l Port                 3378.HK         488     1.39     0.8    16.1   13.3    12.0    5.4    6.3    6.7     0.9    0.8     0.8
 Tianjin Port Dev                  3382.HK       1,355     1.71     NA      NA    17.7    14.1    NA    10.5    9.3     0.9    1.4     1.3
 A-share container ports                                            NA     20.7   18.9    17.2   12.7   12.3   12.8     2.6    2.4     2.3
 Shenzhen Chiwan Wharf           000022.CH      1,115     12.19     NA     17.7   15.5    13.9   15.4   16.5   16.7     2.7    2.5     2.3
 Shenzhen Yantian Port           000088.CH      1,154      6.28     NA     17.5   17.0    15.8   11.0    9.9    9.6     1.9    1.7     1.8
 Shanghai Int'l Port Group       600018.CH     12,115      3.91     NA     21.5   18.7    17.5   11.7   13.0   13.3     2.6    2.4     2.2
 A-share bulk ports                                                 NA     38.8   24.8    20.7    7.9    9.3   10.4     2.4    2.2     1.9
 Tianjin Port                   600717.CH        2,015     8.15     NA     16.9   16.2    13.8    8.0    7.4    8.0     1.4    1.3    1.3
 Rizhao Port                    600017.CH        1,235     5.54     NA     22.4   16.8    14.4    9.1   12.2   13.0     2.0    1.8    1.7
 Jiangsu Lianyungang Port       601008.CH          443     5.58     NA     31.9   22.3    18.2    5.7    7.4    9.4     1.9    1.6    1.5
 Xiamen Port Development        000905.CH          567     7.24     NA     38.1    NA      NA     NA     NA     NA      NA     NA     NA
 Beihai Beihai Port             000582.CH          228    10.89     NA      NA     NA      NA     NA     NA     NA      NA     NA     NA
 Yingkou Port Liability         600317.CH          975     6.02     NA     31.5   29.1    24.8    6.2    6.3    7.8     2.0    1.8    1.8
 Nanjing Port                   002040.CH          278     7.65     NA      NA     NA      NA     NA     NA     NA      NA     NA     NA
 Chongqing Gangjiu              600279.CH          372    11.02     NA     61.2   38.7    31.9    NA     NA     NA      NA     3.1    NA
 Wuhu Port                      600575.CH          832    15.84     NA     78.4   20.8    18.1   10.6   13.4   13.7     4.5    3.2    3.1
 Jinzhou Port                   600190.CH        1,025     4.71     NA     30.0   29.4    23.6    NA     NA     NA      NA     NA     NA
 Tangshan Port                  600100.CH        1,154      7.8     0.7     NA    23.4    18.1    NA    10.1   12.4     NA     2.1    1.9
 Asia-Pacific ports                                                 1.9    22.7   19.9    17.3    9.4   10.3   11.2     2.0    1.9    1.8
 Port of Tauranga                   POT.NZ         652      6.9     NA     20.9   18.6    17.6    6.9    7.8    8.1     1.4    1.4     1.4
 Lyttelton Port                     LPC.NZ         169      2.3     1.4    21.6   22.8    20.6    8.5    7.8    8.6     1.8    1.7     1.7
 ICT SI                             ICT.PM       1,397     33.5     NA     27.8   18.1    14.5   11.9   14.9   16.1     3.0    2.6     2.2
 DP World                          DPW.DU        7,387      0.4     1.2    23.4   22.3    17.1    4.6    4.5    5.5     1.0    1.0     0.9
 Bintulu Port                      BPH.MK          807      6.5     3.1    19.7   17.6    16.9   15.1   16.8   17.5     3.0    3.0     2.9

Source: Bloomberg closing @ Jul 14, 2010, ^ DBS Vickers


                                                                          listing of Ningbo Port Company and Zhanjiang Port Group
CMHI - deserves to trade at a premium (BUY, TP HK$32.34)
                                                                          could add another HK$1.60 to CMHI valuation or 5% to our
With a diversified terminal portfolio nationwide, CMHI is a
                                                                          TP.
good proxy to the recovery of China exports. We initiate
CMHI with a BUY and TP of HK$32.34, implying 23.6x FY10
                                                                          Generally, CMHI trades at a 25-75% premium to the sector
PE and 2.2x FY10 PBV. It deserves a higher valuation for its
                                                                          average, reflecting higher valuation of A-share associates and
consistent strong performance. In addition, the successful
                                                                          potential M&A. Given its successful acquisitions in the past




Page 22
                                                                                                                 Industry Focus
                                                                                                               China Port Sector



several years, market expects CMHI to remain active in its           forward PBV. We initiate it with BUY rating. Currently CP is
M&A activities to consolidate the sector and enhance                 trading at below 0.9x FY10 P/BV, which is attractive as
operating synergies. Currently CMHI trade at a 60% premium           compared to sector’s average of 1.2x.
to the sector average on P/B basis and a 34% premium on P/E
basis.                                                               XIP - Concerns on the threats inside Xiamen hub (HOLD, TP
                                                                     HK$1.56) We initiate XIP with a Hold rating considering i) its
DLP - defensive play with multiple growth drivers (BUY, TP           has the lowest ROE among peers; ii) intensifying competition
HK$4.18) We maintain BUY call on DLP with target price               in the Xiamen hub and neighbouring areas; and iii) XIP is the
of HK$4.18, implying 16.0x forward PE and 1.6x forward PBV.          smallest among peers in terms of operation scale. Our target
DLP offers 30% upside from current market price. With the            price of HK$1.56 implies 17.2x FY10 PE and 0.9x FY10 PBV.
highest ROE and earning growth, its current price is attractive.     Further asset acquisitions from parent may enhance its
It is also a defensive play with limited downside risks. As its      competitive edge and operating scale, driving the possible re-
main business is imported crude oil, impact on DLP will be           rating.
insignificant or it may even benefit from the RMB appreciation.
                                                                     TPD - Concerns on the competition from Hebei. (HOLD, TP
In addition, DLP’s shares may be re-rated on its A-share listing     HK$1.94) Our concern about increasing threat from
as A-shares are trading at much higher multiples.                    neighbouring ports prompts us to initiate coverage of TPD
                                                                     with a HOLD rating, with a HK$1.94 target price based on
CP - Greek concerns overdone (BUY, TP HK$11.83) Concerns             SOTP valuation. This translates into 20.0x FY10 P/E and 1.5x
on its Greek project led to the sharp drop of its share price        FY10 P/BV. It is currently trading at 17.7x FY10 P/E and 1.4x
recently. However, we believe the market reaction is overdone,       FY10 P/BV, respectively, which is higher than the sector’s
and current price is undemanding. We forecast core earning           average of 14.5x and 1.2x, respectively. Potential re-rating
to grow 49% p.a. in FY10 and FY11, due to the higher                 catalysts include: i) the pending acquisition of the large-scale
operating leverage of its container business portfolio. Based        crude oil terminal from parent, and ii) successful development
on SOTP valuation, our target price for CP is HK$11.83,              of Tianjin Binhai New Area and Dongjiang bonded port area.
implying 16.9x FY10 PE (based on core operations) and 1.2x


PB Vs ROE (FY10F)                                                  PB Vs ROE (FY11F)


 FY10F PB (x)                                                       FY11F PB (x)
 2.0                                                                2.0
 1.8                                              CMHI              1.8
                                                                                                                           CMHI
 1.6                                                                1.6
 1.4                                                TPD             1.4
 1.2                                               DLP                                                               TPD
                                                                    1.2                                                     DLP
 1.0                               XIP   CP                         1.0
                                                                                                                CP
 0.8                                                                0.8                                 XIP
 0.6                                                                0.6
 0.4                                                                0.4
 0.2                                                                0.2
 0.0                                                                0.0
       0.0   2.0      4.0      6.0   8.0       10.0      12.0             0.0   2.0      4.0      6.0    8.0     10.0       12.0
                             FY10F ROE                                                         FY11F ROE

Source: Bloomberg, DBS Vickers                                     Source: Bloomberg, DBS Vickers




                                                                                                                               Page 23
Industry Focus
China Port Sector




Peers Comparison Table

                                          CMHI               CP            DLP        XIP           TPD
 Bloomberg code                             144            1199           2880      3378           3382
 Price (HK$)                              26.70            9.80            3.23      1.39           1.71
 Issued shares (mn)                       2,433           2,712          2,926     2,726          6,158
 Market cap (HK$ m)                      64,961          26,578          9,451     3,789         10,530

 Rating                                     Buy             Buy            Buy      Hold          Hold
 Target price                             32.34           11.83           4.18      1.56          1.94
 Upside (%)                                21%             21%            29%       12%           13%

                                     Nationwide
                                                    Nationwide,
                                   with focusing
                                                      Singapore,
                                    on Southern                    Monopoly in              Monopoly in
 Presence                                            Suez Canal,                  Xiamen
                                      China, and                       Dalian                   Tianjin
                                                   Antwerp, and
                                    Vung Tau in
                                                         Piraeus
                                        Vietnam
 Gross container capacity(mn
                                            63.5            55.9           5.1       3.0           12.8
 TEU)
 Attributable container capacity
                                            22.9            14.7           2.2       2.4            5.5
 (mn TEU)

 Valuation
 Revenue (HK$ m)
 2008                                     4,135           2,619          1,797     3,865          1,221
 2009                                     3,588           2,712          1,906     2,347          1,370
 2010F                                    4,016           3,610          2,233     2,648         13,585
 2011F                                    4,493           3,937          2,597     2,866         14,561

 Revenue growth (yoy, %)
 2008                                      24%             13%             1%       18%             5%
 2009                                     -13%              4%             6%      -39%            12%
 2010F                                     12%             33%            17%       13%           892%
 2011F                                     12%              9%            16%        8%             7%

 Core earning (HK$ m)
 2008                                     3,558           1,935            454       427            156
 2009                                     2,746           1,097            648       233            -48
 2010F                                    3,333           1,886            766       285            596
 2011F                                    3,899           2,417            904       316            745

 Core earning growth (yoy, %)
 2008                                      11%             -26%          -30%        1%           -46%
 2009                                     -23%             -43%           43%      -45%          -131%
 2010F                                     21%              72%           18%       22%         -1346%
 2011F                                     17%              28%           18%       11%            25%

 Core EPS (HK$/share)
 2008                                       1.47            0.86          0.16      0.16           0.09
 2009                                       1.13            0.49          0.22      0.09          -0.03
 2010F                                      1.37            0.74          0.26      0.10           0.10
 2011F                                      1.60            0.89          0.31      0.12           0.12

Source: Company, DBS Vickers




Page 24
                                                                 Industry Focus
                                                               China Port Sector




Peers Comparison Table

                               CMHI      CP     DLP     XIP              TPD
 Bloomberg code                 144    1199    2880    3378             3382
 P/Core earning (X)
 2008                          18.18   11.37   20.81    8.88            19.65
 2009                          23.65   20.12   14.58   16.27           -63.91
 2010F                         19.49   13.31   12.33   13.31            17.67
 2011F                         16.66   11.00   10.45   11.98            14.13

 BVPS (HK$/share)
 2008                          12.50    8.83    2.46    1.56            2.02
 2009                          13.80    9.46    2.61    1.61            2.01
 2010F                         14.55   10.82    2.61    1.68            1.26
 2011F                         15.52   10.75    2.82    1.76            1.34

 P/BV (X)
 2008                            2.1     1.1     1.3     0.9              0.8
 2009                            1.9     1.0     1.2     0.9              0.9
 2010F                           1.8     0.9     1.2     0.8              1.4
 2011F                           1.7     0.9     1.1     0.8              1.3

 ROE (%, core earning)
 2008                           12.5     9.5     6.6    10.3             3.7
 2009                            8.6     5.3     8.7     5.4            -1.3
 2010F                           9.7     7.7    10.0     6.3            10.5
 2011F                          10.7     8.5    11.4     6.7             9.3

 DPS (HK$/share)
 2008                           0.68    0.38    0.10    0.06            0.03
 2009                           0.57    0.24    0.28    0.06            0.00
 2010F                          0.59    0.41    0.11    0.03            0.03
 2011F                          0.69    0.36    0.12    0.03            0.04

 Net Debt/Equity (X)
 2008                          34%     41%     12%     Cash             15%
 2009                          32%     42%     30%     Cash             18%
 2010F                         30%     38%     52%     Cash             50%
 2011F                         27%     44%     49%     Cash             46%

 EBITDA margins (%)
 2008                          137%    76%     83%     21%              28%
 2009                          146%    57%     59%     26%               9%
 2010F                         134%    51%     65%     27%              19%
 2011F                         135%    56%     67%     28%              21%

 P/Free cash flow (X)
 2008                          159.3    nm       nm      7.0            19.0
 2009                           60.8    nm       nm     10.6             nm
 2010F                          95.9    nm       nm     13.9             nm
 2011F                          43.9    nm      46.4    11.7            59.1


Source: Company, DBS Vickers




                                                                           Page 25
Industry Focus
China Port Sector




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Page 26
                   Industry Focus
                 China Port Sector




STOCK PROFILES




                            Page 27
China Port Sector
China Merchants Hldgs
Bloomberg: 144 HK | Reuters: 0144.HK




BUY HK$26.70 HSI : 20,561                                                                   Top of the class
(Initiate Coverage)
Price Target : 12-Month HK$ 32.34
                                                                                            •     Largest port operator and investor in China, with focus
Potential Catalyst: Assets listing and overseas expansion
                                                                                                  on Southern China
Analyst
Ken He +86 21 6888 3375
                                                                                            •     High quality assets with proven earnings track record
ken_he@hk.dbsvickers.com                                                                    •     Continuously on the hunt for more assets and projects
Paul YONG CFA +8621 6888 3372                                                                     domestically and internationally
paulyong@dbsvickers.com
                                                                                            •     Initiate coverage with BUY rating, TP HK$32.34;
                                                                                                  successful A-share listing of assets could be catalyst
Price Relative                                                                              Leading PRC port operator. China Merchants Hldgs Int’l
                                                                                            (CMHI) mainly engages in port operation after its gradual
          HK$                                                       Relative Index
       60.80                                                                 216

       50.80
                                                                             196            withdrawal of non-port related business. It owns and invests
                                                                                            in terminals and port companies across the nation. Several of
                                                                             176
       40.80                                                                 156


       30.80
                                                                             136
                                                                             116
                                                                                            its port investments are listed or proposed to be listed on the
       20.80
                                                                             96             A-share market.
                                                                             76
       10.80
           2006             2007            2008             2009
                                                                            56
                                                                         2010
                                                                                            Proven execution record. From terminal operation in Pearl
         China Merchants Hldgs (LHS)                  Relative HSI INDEX (RHS)
                                                                                            River Delta region to tap the active foreign trade, CMHI has
                                                                                            expanded its coverage to all the five coastal port clusters in
                                                                                            China. More than a financial investor, CMHI also enhances
Forecasts and Valuation
                                                                                            synergies between its extensive port portfolios. It also
                                                                                            accelerated its investments in bulk terminals to benefit from
FY Dec (HK$ m)                          2008A          2009A        2010F         2011F     rising demand for raw materials in China.
Turnover                                  4,135            3,588    4,016          4,493
EBITDA                                    5,370            4,732    5,367          6,045    Solid platform for future M&A. It also ventured into
Pre-tax Profit                            4,315            3,735    3,819          4,491    terminal business in Vietnam to tap the rapid growth
Net Profit                                3,706            3,238    3,333          3,899
                                                                                            potential of foreign trade in Vietnam and free trade between
Net Pft (Pre Ex.)                         3,405            2,746    3,333          3,899
EPS (HK$)                                  1.53              1.33    1.37           1.60    ASEAN and China. These successful acquisitions, CMHI has
EPS Gth (%)                                  2.3           (13.0)     2.9           17.0    built up a solid platform for future M&A opportunities
Diluted EPS (HK$)                          1.52             1.24     1.47           1.73    domestically and internationally.
DPS (HK$)                                  0.68              0.57    0.59           0.69
BV Per Share (HK$)                        12.50            13.80    14.55          15.52    Deserve premium rating. We like CMHI as the premier
PE (X)                                     17.5              20.1    19.5           16.7    multi-port operator in China. We initiate CMHI with a BUY
P/Cash Flow (X)                            35.6              37.7    48.7           42.6
P/Free CF (X)                             159.3             60.8     95.9           43.9    rating on target price of HK$32.34 using SOTP valuation
EV/EBITDA (X)                              14.5              16.5    14.6           12.8    method. This implies a 23.6x forward earning and 2.2x
Net Div Yield (%)                           2.5               2.1     2.2            2.6    forward P/BV. It deserves a higher valuation for its successful
P/Book Value (X)                             2.1              1.9     1.8            1.7
Net Debt/Equity (X)                          0.3              0.3      0.3            0.3
                                                                                            execution record and consistent strong performance. The
ROAE (%)                                   13.0              10.1     9.7           10.7    successful listing of two port companies which CMHI has
                                                                                            stakes in could add another HK$1.60 to CMHI valuation or
Earnings Rev (%):                                                     New            New    5% to our TP.
Consensus EPS (HK$):                                                  1.31           1.52

                                                                                                At A Glance
ICB Industry: Industrials                                                                       Issued Capital (m shrs)                            2,433
ICB Sector: Industrial Transportation                                                           Mkt. Cap (HK$m/US$m)                      64,971 / 8,361
Principal Business: Marine port conglomerate, also operates airport                             Major Shareholders
cargo handling, property, container manufacturing and other                                          China Merchants Group Limited (%)             55.8
related businesses.                                                                             Free Float (%)                                     44.2
Source of all data: Company, DBSV, Bloomberg, HKEX                                              Avg. Daily Vol.(‘000)                             5,195




Page 28
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-JS / sa- DC
                                                                                                                   China Port Sector
                                                                                                        China Merchants Hldgs




Company Background                                               restructuring, CMHI has become the largest operator in China,
                                                                 handling gross container throughput of 43.9mn TEUs in 2009
Largest port operator in China with solid a footprint throughout from its nationwide port network in key trading hubs across
the key hub ports. China Merchant Holding International          coastal China including HongKong, Shenzhen, Shanghai,
(CMHI), a 55.6%-owned subsidiary of a centrally-SOE group –      Ningbo, Qingdao, Tianjin, Xiamen, and Zhanjiang. CMHI also
China Merchants Group, engages mainly in port and related        invests in airport cargo handling, logistics, container
infrastructure business. It was founded in 1991 and listed on    manufacturing, property investment, and other businesses.
HKEx in Jul 1992. Through years of acquisitions and


 CMHI’s Structure

                                                         China Merchants Group
                                                               Ltd. (CMG)

                                                                    55.59%

                                                                 CMHI                44.41%                Public
                                                                                                       H-share 144.HK


     Terminals and related businesses

     Bohai Rim Region
       Tianjin Five Continents Int’l Container (14%)
       Tianjin Haitian Bonded Logistics Park (49%)                         Port-related businesses
       Qingdao Qianwan Container Terminal United (50%)
       Qingdao Qianwan West Port United (49%)                              China International Marine Containers (Group) Co., Ltd.
                                                                           (000039/200039.CH)
     Yangtze River Delta                                                   (24.82%)
       Shanghai Int’l Port Group (26.54%)                                     Container manufacturing
       China Merchants Int’l, Ningbo Daxie (45%)                              Road transportation vehicle
       Ningbo Port Co. (5.4%)                                                 Energy, chemical and liquid food equipments
                                                                              Airport equipments
     South-east Coastal Area
       Zhangzhou China Merchants Port (60%)                                Asia Airfreight Terminals Co., Ltd. (HK) (20%)

     Pearl River Delta
       Mega Shekou Container Terminal (85.40%)
       China Merchants Port Services (100%)
       Chiwan Container Terminal (21.50%^)
       Shenzhen Mawan Project (78.78%)                                     Other businesses
       Shenzhen Chiwan Wharf (29.27%*)
       Shenzhen Haixing Harbour Development (67%)                          China Nanshan Development Incorporation (CNDI,
       Shenzhen Qianhaiwan Bonded Logistics                                37.01%)
       China Merchants Maritime Logistics (60%)                              Port related services (57.51% stake in Shenzhen
       China Merchants Container Services (100%)                           Chiwan Wharf, 000022/200022.CH)
       Modern Terminals (27.01%)                                             Petroleum services (51.79% stake in Chiwan
                                                                           Petroleum Base 200053.CH)
     South-west Coastal Area                                                 Real estate investments (48.77% stake in Yahgee
       Zhanjiang Port Group (40.29%)                                       Modular House Co., Ltd., 002314.CH)
     Overseas, Vietnam, Greater Ho Chi Minh Area
       Vung Tau Int'l Container Port (49%)

^ partially through Shenzhen Chiwan Wharf, * partially through CNDI

Source: Company, DBS Vickers




                                                                                                                                     Page 29
China Port Sector
China Merchants Hldgs



 Summary of Port-related Assets
                                                                                       Design
                                                               Quay       Depth
                                                 Berth                                capacity
                                                              length    alongside                Category    Stake      Status
                                                  no.                                   (mn
                                                                (m)        (m)
                                                                                    TEU/mn mt)
  Bohai Rim
  Tianjin Five Continents Int'l Container            4          1,202         16           1.5   Container    14%    AFS investment
  Tianjin Haitian Bonded Logistics                 NA             NA          NA           NA          NA     49%         Associate
  Qingdao Qianwan United Container                   9          3,163         20           5.5   Container    50%                JCE
  Qingdao Qianwan West Port United                   7           1326         17           NA         Bulk    49%                JCE
  Subtotal (Container)                              15                                     7.6
  Attributable (Container)                                                                 2.9


  Yangtze River Delta
  Shanghai Int'l Port (Group)                       39         10,500         16          21.3   Container    27%         Associate
                                                                                         170.5        Bulk
  China Merchants Int'l, Ningbo Daxie                3          1,170         18           2.4   Container    45%                JCE
  Ningbo Port Co.                                   60         12,886                      5.8   Container     5%    AFS investment
                                                                                         147.5        Bulk
  Subtotal (Container)                             102                                    29.5
  Attributable (Container)                                                                 7.0


  Pearl River Delta and Southeast Coast
  Zhangzhou China Merchants Port                     2          1,664         18           0.4   Container    60%        Subsidiary
                                                     6                                     NA         Bulk
  Shekou Container Terminals                         8          3,000         16           5.8   Container    85%        Subsidiary
  Chiwan Container Terminal                          9          3,418         16           6.2   Container    22%         Associate
  Shenzhen Chiwan Wharf                              7            973         16           2.0   Container    29%         Associate
  Shenzhen Mawan Port Service                        3          1,080         16           2.1   Container    79%        Subsidiary
  China Merchants Port Services                      8          3,300         15           1.5   Container   100%        Subsidiary
                                                     6                                     NA         Bulk
  Shenzhen Qianhaiwan Bonded Logistics
  Shenzhen Haixing Harbour Dev                       6          1,150         14          10.0        Bulk    67%        Subsidiary
  Modern Terminals                                   7          2,322         16           5.5   Container    27%         Associate
  China Nanshan Development                        NA             NA          NA           NA          NA     37%         Associate
  China Merchants Maritime Logistics                              NA          NA           NA          NA     60%        Subsidiary
  China Merchants Container Services                              NA          NA           NA          NA    100%        Subsidiary
  Asia Airfreight Terminal                         NA             NA          NA           NA          NA     20%         Associate
  Zhanjiang Port Group                              24          6,627         22          24.3        Bulk    40%                JCE
                                                    10                                    25.3         Oil
                                                     2                                     0.4   Container
  Subtotal (Container)                              99                                    23.9
  Attributable (Container)                                                                12.4


  Overseas
  Vung Tau Int'l Container Terminals^                8          2,400         NA           4.0   Container    49%                JCE
  Subtotal (Container)                                                                     4.0
  Attributable (Container)                                                                 2.0


  Total (Container)                                                                       63.5
  Attributable (Container)                                                                22.9

 ^ Greenfield project, not included in the aggregate number
 Source: Company, DBS Vickers




Page 30
                                                                                                                China Port Sector
                                                                                                      China Merchants Hldgs



 CMHI’s Development Track
  Year            Milestone
  2010            Established JV – Vung Tau Int’l Container Terminals in Vietnam
                  Established JV with Qingdao Port Group
  2009            Raised stake in Mega Shekou Container Terminal to 75%
                  Disposed 64% stake in Hempel-Hai Hong
                  Established JV with Qingdao Qianwan United
  2008            Raised stake in Mega Shekou Container Terminal to 73%
                  Acquired 5.4% of Ningbo Port Co.
                  Signed JV in Vietnam




                                                                                                                          Continuous consolidation port assets in western Shenzhen

                                                                                                                           Expansion from south to north, from container to bulk
                  Disposed 13% stake in HongKong Western Harbour Tunnel project
                  Disposed 72% stake in China Merchants Holdings Pacific Ltd. (CMHP, toll road business)




                                                                                                                                  Continuous disposal of non-port assets
  2007            Completed Mega Shekou Container Terminal transaction
                  Acquired 45% in Zhanjiang Port Group
  2006            Shenzhen Marine Logistics Park phase 2 started operation
                  Qingdao Logistics Park phase 1 started operation
                  Increased 40% equity interest in Mawan port and 34% equity interest in Haixing port
                  Started Mega Shekou Container Terminal restructuring
  2005            Increased 17.5% equity interest in Shekou Container Terminal 1
                  Completed acquisition of 30% stake in Shanghai Int’l Port Group
                  Increased 5% equity interest in Modern Terminal
                  Acquired 14% stake in Tianjin Five Continents Terminal
                  Disposed 43% stake in CMF Technology Fund and 30% stake of PPG Paint
  2004            Commenced development at Ningbo and Qingdao
                  Acquired 33% of Haixing Port
                  Announced to acquire 30% in Shanghai Int’l Port Group
  2003            Developed container terminals at Taicang, Suzhou through Modern Terminals
                  Commenced development of Shekou Container Terminal 3
                  Commenced development of Mawan port
  Prior 2003      Mainly operating terminals in Western Shenzhen and HongKong
                  Establishment of Zhangzhou China Merchants Port in 2000

 Source: Company, DBS Vickers


                                                                     after Baosteel’s investments in 2008) and 5.4% of Ningbo
Expansion from south to north..… CHMI started container
                                                                     Port Company (NPC) in Mar 2008. The port of Ningbo is the
terminal operation in western Shenzhen and HK areas where
                                                                     largest bulk port in China, while Zhanjiang Port is the largest
trading activities were most active following the location of
                                                                     bulk port in Southern China.
special economic zone in the Peral River Delta region during
the 1990s. With the gradual open-up from south to north,
                                                                     Streamlined businesses to focus on port operations CMHI
CMHI has also extended its footprint to the key hub ports in
                                                                     continues to streamline its operations to focus on core port-
Yangtze River Delta and Bohai Rim region. Now CMHI
                                                                     related businesses. Non-port assets were sold including 64%
operates container terminals in the five coastal port clusters.
                                                                     interest in its paint assets – Hempel-Hai Hong, 43% stake in
                                                                     CMF Technology Fund and 30% stake in PPG (paint business)
…and from container to bulk…. CMHI accelerated its
                                                                     in 2005, 13% stake in HongKong Western Harbour Tunnel
investments in bulk terminal operations to benefit from rising
                                                                     project and 72% stake in China Merchants Holdings Pacific
demand for raw materials in China. It acquired a 45% stake
                                                                     Ltd (toll road business) in 2008. Proceeds raised from these
in Zhanjiang Port Group (ZPG) in Sep 2007 (diluted to 40.3%,




                                                                                                                                                              Page 31
China Port Sector
China Merchants Hldgs



disposals were set aside for potential acquisitions to further       In YRD region, CHMI owns a 26.5% equity interest in
consolidate its port assets.                                         Shanghai Int’l Port Group (SIPG, 600018.CH) and 5.4% stake
                                                                     in NPC. These are the exclusive terminal operators in two of
More than a financial investor. CMHI now owns several listed         the largest ports in China. Given their geographical proximity,
and unlisted local port groups since it has been involved in         these two ports have a long history of competition. CMHI has
several restructuring of local port groups.                          actively promoted cooperation between SIPG and NPC, and a
                                                                     JV between SIPG and NPC was formed and commenced
With its base in Pearl River Delta, holds equity interests in        operation in Mar 2010.
several assets within western Shenzhen and HK region,
including 29.3% stake in Shenzhen Chiwan Wharf (SCW,                  Revenue mainly from Shenzhen, while 1/3 earnings from
000022.CH/200022.CH, 21.3% through CNDI and 8.0%                     SIPG. With its nationwide expansion, CMHI’s gross container
through B-share market), 27.0% stake in Modern Terminals             throughput grew by a CAGR of 38.3% during FY03-FY08.
(MTL, indirectly listed through Wharf, 4.HK), 24.8% stake in         Container throughput dropped 13.1% yoy in FY09 due to
CIMC (000039/200039.CH) and 19.2% stake in Chiwan Base               decline in foreign trade. However, with higher contribution
(200053.CH, through CNDI). Given its significant interests in        from bulk business and logistic park total revenue only
the region, CHMI also acts as a coordinator to prevent               decreased 9.6% yoy in FY09. Riding on China’s increasing
excessive price competition in the region.                           demand for bulk cargo import, CMHI’s gross bulk & general
                                                                     cargo throughput rose 10% yoy to 232mn mt in FY09.
On Jun18, 2010, CMHI entered into the entrustment
agreement to exercise the management rights and the power            Contribution from western Shenzhen based subsidiaries,
to direct the voting right over 23.5% of CNDI, pending EGM’s         accounted for 87% of total revenue. In terms of profits,
approval on Aug12, 2010. Together with previous 37.0%                associates and JCEs contributed 60% of total EBIT in FY09.
stake in CNDI, this will result in CMHI being able to                The main contributor was SIPG, which accounts for 28% of
consolidate the financials of CNDI. In addition, CMHI is             EBIT and 39% of net profit (exclude discontinued operations)
expected to further align the interests of port operators in         in FY09.
western Shenzhen. However, we think the deal will not
directly influence CMHI’s cash flow as is is not entitled to the
dividend income.

Revenue from Port Operation Breakdown by Region, FY09 EBIT from Port Operation Breakdown by Region, FY09


                                            HongKong                                                         HongKong
                                               5%                                                              10%

                                                    Other
                                                  locations
                                                     8%
                                                                               Shenzhen
                                                                                 56%



                 Shenzhen
                   87%

                                                                                                                 Ningbo and
                                                                                                                  Shanghai
                                                                                                                    34%


Source: Company, DBS Vickers                                       Source: Company, DBS Vickers




                                                                     JV, Vung Tua Int’l Container Port with a modern warehouse
Venture into overseas. Apart from its nationwide distribution
                                                                     and logistic park, replaced the previous JV. CMHI owns 49%
in China, CMHI has also expanded overseas with the
                                                                     stake in the JV, while its partners Ben Dinh Sao Mai Port Dev
establishment of a joint venture in Vietnam in Sep 2008. This



Page 32
                                                                                                           China Port Sector
                                                                                                  China Merchants Hldgs



and Sao Mai-Ben Dinh Petroleum Inv hold 26% and 25%                In addition, CMHI is looking into investments in Colombo, Sri
respectively. The JV will develop port operations in Beh Dinh      Lanka. The port of Colombo is one of the top 30 ports in the
Sao Mai, which is being developed into an international            world and can provide transhipment businesses for East Africa.
container terminal with an operation term of 50 years.             The existing port capacity is close to saturation. CMHI Group
Terminal operators in Vietnam should directly benefit from the     has achieved a number of key negotiation milestones.
free trade agreement between ASEAN countries and China.

Gross Container Throughput (2003-2009)                           Gross Bulk & General Cargo Throughput (2003-2009)


 mn TEU                                                           mn mt
 60                                                 100%          250                                               160%

 50                                                 80%                                                             140%
                                                                  200
                                                                                                                    120%
 40                                                 60%                                                             100%
                                                                  150
 30                                                 40%                                                             80%
                                                                  100                                               60%
 20                                                 20%
                                                                                                                    40%
                                                                   50
 10                                                 0%                                                              20%
                                                                    0                                               0%
  0                                                 -20%                2003 2004 2005 2006 2007 2008 2009
      2003 2004 2005 2006 2007 2008 2009
                                                                             Non-containerised cargo throughput (LHS)
       Container throughput (LHS)          Growth (RHS)                      Growth (RHS)

Source: Company, DBS Vickers                                     Source: Company, DBS Vickers




                                                                                                                          Page 33
China Port Sector
China Merchants Hldgs




Growth Prospects                                                                                                                         exports, suffered more than northern ports during the economic
                                                                                                                                         downturn in 2009. However, recent domestic and global
Sharp rebound in the southern China economy. Generally, bulk                                                                             economic data have raised optimism of a sustainable global
ports are concentrated in northern China, whereas container                                                                              recovery. As such, we expect a sharp rebound of container
ports are in southern China, thus, the industry phrase “south                                                                            throughput due to the pent-up demand and the low base effect.
container, north bulk”. This is because processing businesses
are concentrated in the Pearl River Delta Region and Yangtze                                                                             With over 90% revenue and earnings coming from Pearl River
River Delta Region, while northern territories provide grains and                                                                        Delta and Yangtze River Delta regions, CMHI should benefit
natural resources. Southern ports, which are mainly driven by                                                                            from the rapid throughput growth in southern China.

Import & Export Growth Yoy (%)                                                                                                           Port Climate Index: Container Throughput (May 2007=100)


  %                                                                                                                                       May 07 = 100
  80                                                                                                                                      160
                                                                                                                                          150
  60
                                                                                                                                          140
  40
                                                                                                                                          130
  20
                                                                                                                                          120
   0
                                                                                                                                          110
 -20                                                                                                                                      100
 -40                                                                                                                                       90
                         Jul-09
                                  Aug-09
                                           Sep-09
                                                    Oct-09
                                                             Nov-09
                                                                      Dec-09
                                                                               Jan-10
                                                                                        Feb-10
                                                                                                  Mar-10
                                                                                                           Apr-10
                                                                                                                    May-10
                                                                                                                             Jun-10
       May-09
                Jun-09




                                                                                                                                           80
                                                                                                                                                 Mar-08
                                                                                                                                                          May-08
                                                                                                                                                                   Jul-08
                                                                                                                                                                            Sep-08
                                                                                                                                                                                     Nov-08
                                                                                                                                                                                              Jan-09
                                                                                                                                                                                                       Mar-09
                                                                                                                                                                                                                May-09
                                                                                                                                                                                                                         Jul-09
                                                                                                                                                                                                                                  Sep-09
                                                                                                                                                                                                                                           Nov-09
                                                                                                                                                                                                                                                    Jan-10
                                                                                                                                                                                                                                                             Mar-10
                                                                                                                                                                                                                                                                      May-10
                                                Export                                           Import

Source: CEIC, DBS Vickers                                                                                                                Source: CEIC, DBS Vickers




 Container Throughput Growth in Major Coastal Ports
                                           Dalian                              Tianjin                        Qingdao                 Shanghai                 Ningbo                            Xiamen                       Shenzhen                       Guangzhou

  Jan 2010                                       9%                                 21%                                 10%               15%                        22%                                23%                                10%                                 60%
  Feb 2010                                      34%                                  9%                                  8%               27%                        47%                                35%                                53%                                 22%
  Mar 2010                                      18%                                  8%                                  9%                6%                         9%                                27%                                23%                                 16%
  Apr 2010                                      21%                                  6%                                 11%               20%                        45%                                34%                                31%                                 17%
  May 2010                                      14%                                 11%                                 16%               24%                        52%                                28%                                27%                                 10%
  Jun 2010                                      10%                                 23%                                 15%               22%                        39%                                37%                                37%                                  1%
  Ytd                                           17%                                 13%                                 11%               19%                        34%                                28%                                29%                                 17%

 Source: CEIC, DBS Vickers




Page 34
                                                                                                               China Port Sector
                                                                                                     China Merchants Hldgs



 Proposed IPO

  Company                  Shareholding structure           Acquisition                                                     Proposed
                                                                                                                             IPO date
  Ningbo Port Co.          Ningbo Port Group 90%,           RMB847m (RMB1/share) for 5.4% in Mar2008                        Mid-2010
                           CHMI 5.4%, others 4.6%
  Zhanjiang Port           Zhanjiang SASAC 50%, CMHI        RMB1620m (RMB1/share) for 45% in Sep2007,                         3Q2010
  Group                    40.3%, Baosteel 8%, and          On Jul2008, new 420m shares issued at RMB1.09/share, CMHI's
                           others 1.7%                      stake diluted to 40.3%

 Source: Ningbo Port Co. A-IPO prospectus, Zhanjiang Port (Group) Co., Ltd.




Planned assets’ listing to boost valuation. According to NPC’s
                                                                     Summary of NPC’s IPO
A-IPO prospectus and ZPG’s website, CMHI’s two non-listed
assets, Ningbo Port Company (5.4% owned) and Zhangjiang               Pre A-IPO shares                                   10.80bn
Port Group (40.3% owned), are seeking A-share IPO in 2010.            Proposed A-share issued                             2.50bn
We believe the listings should enable the companies to tap            Shares after A listing                             13.30bn
capital markets to finance its future developments as well as         Planned H-share issued                              2.35bn
enhance the company’s corporate governance as well as                 Shares after H listing                             15.65bn
operating and financial transparencies. In addition, A-share
                                                                      FY09 EPS                                          RMB0.17
stocks usually command a higher valuation than the H-share            FY09 BVPS                                         RMB1.34
counterparts. Hence, we believe that the A-share listings             FY09 CFPS                                         RMB0.13
would enhance CMHI’s valuation.                                       FY09 ROE (%)                                        12.87

Ningbo Port Company (NPC) is situated in the second largest           Expected fund raised from A listing          RMB132.50bn
port in China (Ningbo hub, besides Shanghai hub) in terms of          Implied A-share IPO price                     RMB5.30/ps
total freight flows. Ningbo hub is the largest oil port in China.     Implied FY09 PER                                    31.5x
                                                                      Implied FY09 PBR                                     4.0x
Two of the four national strategic crude oil reserves (Phase I)
are located at Ningbo hub. NPC mainly handles oil, coal, ore,
                                                                      Expected H-share IPO price                  >= RMB5.30/ps
container and other cargos. According to NPC’s prospectus, it         Expected fund raised from A listing        >= RMB12.46bn
plans to issue 2.5bn A-share, funding RMB13.25bn for the
construction of container and coal berths. On Jun4, 2010, the
                                                                     Source: Company, DBS Vickers
A-share IPO application has been approved by China Securities
Regulatory Commission, and is expected to be listed on
Shanghai Stock Exchange soon. NPC also plans a H-share               Zhangjiang Port Group (ZPG) is the major dry bulk port in
listing after its successful launch in A-market, with issuing        south eastern coast of China. It owns and operates a
23.5bn shares and an expected H-share IPO price no less than         200,000-DWT iron ore terminal, 300,000-DWT crude oil
A-share IPO price.                                                   terminal, and 150,000-DWT coal terminal. ZPG is the largest
                                                                     oil and iron ore port after Ningbo hub, and the nearest
                                                                     channel for the iron ore imported from Australia. With
                                                                     Baosteel as a strategic investor, it also guarantees huge iron
                                                                     ore throughput in the future.

                                                                     Currently, A-listed bulk-focused port companies are trading at
                                                                     an over 2.2x FY10F P/BV. We believe the planned listings
                                                                     would set a higher reference benchmark for NPC and ZPG’s
                                                                     NAV valuation, which is expected to enhance CMHI’s
                                                                     valuation, given that A-share ports are trading at a premium,
                                                                     even to CMHI.




                                                                                                                              Page 35
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Shanghai aims to an international shipping hub. The port of           strategic locations. In late-May 2010, SIPG finalized the long-
Shanghai is located in the middle of coastline of China, where        awaited acquisition of 25% stake in APMT’s terminal for total
the Yangtze River flows into the sea. With its strategic              consideration of EUR27.16m. APMT has depth alongside
location, port of Shanghai serves vast hinterland along the           15.2m, quay length 900m, stake yard 450k sm, designed
“Golden Waterway” in China. It is the largest port in terms of        capacity 850k TEU at the port of Zeebrugge which is the
total freight throughput and the second largest container port.       largest LNG port and the sixth largest container port in Europe.
                                                                      This was SIPG’s first step out of China.
In 2009, State Council indicated to develop Shanghai into
international financial and shipping hub. Currently,                  We believe CMHI will continue to benefit from SIPG’s (which
international transhipment accounted only 10% of total                accounts for 1/3 of earnings) growth including its home port
container throughput in Shanghai hub limited by the                   development and expansion strategy.
regulation. Supported by the favourable policies in Yangshan
port area, port of Shanghai is expected to be the first free port     First step into rapidly growing Vietnam. Apart from its
in China and hence will see more transhipment business. We            nationwide distribution, CMHI began its first move towards
expect the policy is more inclined to benefit Shanghai hub in         overseas expansion with the establishment of a port JV near
the long term.                                                        Ho Chi Minh city in Southern Vietnam. Vietnam is also a high-
                                                                      growth developing nation with foreign trade registering
Shanghai International Port Group (SIPG) is the local exclusive       19.0% CAGR during 2001-2009. Container throughput has
operator in Shanghai hub. It has also implemented a strategy          witnessed a 20.2% CAGR over 2004-2009. We expect
to consolidate port assets along the Yangtze River. Its has           terminal business in Vietnam to directly benefit from rapid
fostered a series of main feedering hub ports along the               growth in foreign trade and the free trade agreement
Yangtze River in Chongqing, Wuhan, Nanjing and other                  between ASEAN countries and China.

Container Throughput in Vietnam (m TEU)                             Foreign Trade in Vietnam (US$ bn)



 6                                                      45%          160                                                                     35%
                                                                     140                                                                     30%
                                                        40%
 5                                                                                                                                           25%
                                                        35%          120
                                                                                                                                             20%
 4                                                      30%          100                                                                     15%
                                                        25%           80                                                                     10%
 3
                                                        20%           60                                                                     5%
 2                                                      15%                                                                                  0%
                                                                      40
                                                                                                                                             -5%
                                                        10%
 1                                                                    20                                                                     -10%
                                                        5%
                                                                       0                                                                     -15%
 0                                                      0%
                                                                           2001

                                                                                    2002

                                                                                           2003

                                                                                                  2004

                                                                                                         2005

                                                                                                                2006

                                                                                                                        2007

                                                                                                                               2008

                                                                                                                                      2009




      2004    2005     2006    2007    2008     2009
          Throughput (LHS)               Growth (RHS)                             Foreign trade (LHS)                  Growth (RHS)

Source: Company, DBS Vickers                                        Source: Company, DBS Vickers




Strategic tie-up with other operators. Prior to the                   On Jun 5, 2010, CMHI further enhance its cooperation with
establishment of QQCTU in Dec 2009, CMHI Qingdao was a                Qingdao Port Group by the establishment of a bulk cargo
wholly owned subsidiary. CMHI Qingdao suffered declining              terminal JV (CMHI 49%, Qingdao Port Group 51%). Both
business and registered a net loss of RMB200m in FY09, due            parties will transfer their previous berths (CMHI 2 berths,
to fierce competition in Qingdao hub amid the crisis. We              Qingdao Port Group 5 berths) into the new JV. We believe the
believe the formation of the partnership with the local port          tie-up with Qingdao Port Group is expected to eliminate the
authority and carrier-associated operator should greatly              competition between two parties previously and achieve win-
enhance the business in Qingdao.                                      win. We expect CMHI’s Qingdao operation to turn profitable
                                                                      in FY10.




Page 36
                                                                                                             China Port Sector
                                                                                                   China Merchants Hldgs



Container manufacturing business should improve. China
International Marine Containers (CIMC) reported 80.9% yoy           Key Risks
decline in container revenue in FY09, with the container sales
volume retreated 91.4% yoy. As the economy picks up, we             Ongoing sovereign debt crisis in EU. China’s export may suffer
expect CIMC’s container manufacture business to bottom out          from the ongoing debt crisis and possible contagion in EU. The
in FY10 driven by pent-up demand. In addition, dry container        Euro also depreciated 13% against RMB year to date. As 20%
price surged to current nearly US$2,750/TEU from less than          of China’s exports in value terms go to EU zone, gloomy
US$2,000/TEU by end-2009. We should see increasing sales            economic outlook in EU zone and tumbling euro greatly
volume and improved margin for CIMC’s container                     troubled Chinese exporters. As the home base of CMHI,
manufacturing business this year.                                   western Shenzhen terminals have the most routes and
                                                                    exposure to EU zone.
Container Volume manufactured by CIMC (‘000 TEUs)
                                                                    A-share correction may narrow its premium. CMHI is trading at
                                                                    a premium to its HK-listed port companies, partially due to the
 '000 TEUs                                                          high valuation of its A-share assets, especially SIPG. Its
 2,500                                                              premium to peers could narrow if there is further correction in
                                                                    A-share market.
 2,000
                                                                    Hinterland flow risk. On Jul1, 2010, Foxxcon International
 1,500                                                              announced to relocate its production lines from Shenzhen to
                                                                    Langfang, Hebei province, with the intention to alleiate the
 1,000                                                              resent pressure from wage hikes. Other factories in PRD also
                                                                    see rising wage pressure. CMHI with focus on southern China
   500                                                              may suffer the continuing relocation of manufacturing from
                                                                    PRD to northern China.
     0
          2004


                 2005

                        2006

                               2007

                                      2008

                                             2009


                                                    2010F

                                                            2011F




Source: Company, DBS Vickers




                                                                                                                           Page 37
China Port Sector
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Segmental Analysis                                               throuhgput at Bohai Rim region is expected to grow 7-8% in
                                                                 FY10F. Blended container handling charge is also projected to
Rebound in throughput to drive revenue and earnings growth.
                                                                 increase, with declining percentage from empty containers and
Amid the economic uncertainties in 2009, container throughput
                                                                 domestic containers.
handled by CMHI dropped 13.1% yoy, while total revenue only
decreased 9.6% yoy. This was the result of contribution of its   As a result of increasing both throughput and handling charge,
bulk business and logistics park.                                we expect CMHI’s port revenue to climb 12% per annum in
                                                                 each of FY10F and FY11F. Operating profit margin of port
Driven by pick up of foreign trade and low base last year, we
                                                                 operation is forecasted to rise to 43% in FY10F and 44% in
estimate Pearl River Delta and Yangtze River Delta to record 10-
                                                                 FY11F, resulting from the improved utilization and higher
12% container throughput volume growth in FY10F. Container
                                                                 handling charges.

Revenue Breakdown by Regions

                        Revenue (HK$ m)           Growth (%)
                                                                                                                       Comments
                         09A    10F   11F       09A    10F   11F
Shezhen                                                                Container throughput in Shekou port area and Chiwan port
Subsidiaries           3,095   3,497   3,882   -13%   13%    11%         area saw 27% and 36% yoy growth, respectively, in 1H10.
Share of associates    2,344   2,532   2,734   -14%    8%     8%     Chiwan’s figures outperformed 29% yoy growth of Shenzhen
                                                                    total and 22% yoy growth of National total. Shenzhen Chiwan
Share of JCEs             31      31      32   -48%    1%     3%           Wharf (SCW) registered 15% and 41% yoy growth for its
Subtotal               5,470   6,060   6,648   -14%   11%    10%                                 revenue and earning respectively.

HongKong
Subsidiaries             175     191     206    -5%    9%     8%
Share of associates      892     963   1,040   -16%    8%     8%       In 1H10, AAT saw 56% yoy growth for tonnage throughput.
Share of JCEs             10      10      10   -38%    1%     3%
Subtotal               1,077   1,164   1,257   -15%    8%     8%

Shanghai & Ningbo
Subsidiaries             NA      NA      NA     NA     NA     NA
Share of associates    3,801   4,314   4,768   -3%    14%    11% In 1H10, SIPG’s container up 19% yoy, total freight up 25% yoy.
Share of JCEs            192     227     269   11%    18%    18%                  In 1H10, Ningbo Daxie’s container up 53% yoy.
Subtotal               3,993   4,542   5,037   -3%    14%    11%

Other locations
Subsidiaries             286     200     220   -21%   -30%   10% CMHI’s two subsidiaries in Qingdao became JV in 2010. In 1H10,
                                                                 container and freight throughput in Qingdao saw 11% and 9%
Share of associates        3       3       4     NA    10%   10%                                       yoy growth, respectively.
Share of JCEs            674     944   1,132    -3%    40%   20%
Subtotal                 963   1,147   1,356    -9%    19%   18%

All locations
Subsidiaries           3,556 3,888 4,308       -13%    9%    11%
Share of associates    7,040 7,812 8,546        -9%   11%     9%
Share of JCEs            907 1,212 1,444        -4%   34%    19%
Total                 11,503 12,913 14,298     -10%   12%    11%

Source: Company, DBS Vickers




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                                                                                                            China Port Sector
                                                                                                  China Merchants Hldgs



                                                                    Total revenue is projected to grow at a CAGR of 12% in FY10
Stable rental business. We expect a stable rental income for
                                                                    and FY11. Meanwhile, CMHI’s operating margin maintained
FY10F and FY11F. Previously, the high segmental operating
                                                                    at above 40% level. The forecast does not include the
profits was mainly resulted from the revaluation gain from
                                                                    potential consolidation of CNDI’s financials.
investment properties. Conservatively, we expect no
revaluation gain from the investment properties. A stable
HK$25m operating profit is estimated for the next two years.

Segmental Analysis

FY Dec                                                         2008A              2009A               2010F               2011F

Revenues (HK$ m)
 Port operations                                                4,103              3,556               3,984              4,461
 Gross rental income from investment properties                    32                 32                  32                 32
Total                                                           4,135              3,588               4,016              4,493

Operating profit (HK$ m)
 Port operations                                                1,621              1,463               1,722              1,954
 Gross rental income from investment properties                   406                200                  25                 25
 Elimination                                                      (92)              (122)               (137)              (153)
Total                                                           1,935              1,541               1,611              1,826

Operating profit Margins (%)
 Port operations                                                  39.5              41.1                43.2               43.8
 Gross rental income from investment properties                1,268.8             625.0                78.1               78.1
Total                                                             46.8              42.9                40.1               40.6

Source: Company, DBS Vickers




                                                                                                                         Page 39
China Port Sector
China Merchants Hldgs




Quarterly / Interim Performance
                                                                 Good start in 2010 as listed associates delivered. Benefiting
                                                                 from the improved economy and pent-up of demand, several
Pick up in 2H09. Total revenue in 2H09 slipped 6.8% yoy,
                                                                 listed associates of CMHI delivered good 1Q10 results. SIPG
dragged by revenue from port operation. However, this was an
                                                                 achieved 18.2% and 39.4% yoy growth for its topline and
improvement from 19.9% yoy decline in 1H09. However,
                                                                 bottomline respectively in 1Q10, and saw improved operating
operating profit margin of port business increased 6.7ppt from
                                                                 margin as well. Similarly, Shenzhen Chiwan Wharf (SCW)
36.2% in 2H08 to 42.9% in 2H09, due to the decrease of
                                                                 registered 15.0% and 40.6% yoy growth for its topline and
administrative expenses. Group net profit in 2H09 decreased
                                                                 bottomline respectively. Supported by the pent-up demand for
10.5% yoy as compared to that in 2H08 due to contribution
                                                                 container boxes, CIMC recorded a 82.6% yoy growth for total
from discontinued businesses of RMB155m in 2H08. Excluding
                                                                 revenue in 1Q10. Net profit decreased 15.4% yoy, due to a
contribution from discontinued businesses, net earnings would
                                                                 large disposal gain of AFS investment in 1Q09. Excluding
have dropped 1.4% yoy in 2H09, lower than 6.8% yoy revenue
                                                                 disposal gain, CIMC’s core earing reversed from a negative
drop .
                                                                 RMB235m in 1Q09 to RMB342m in 1Q10.

Interim Income Statement (HK$ m)

FY Dec                                           1H2008                  2H2008                  1H2009                  2H2009


Turnover                                          2,057.0                 2,078.0                1,651.0                 1,937.0
Cost of Goods Sold                              (1,042.0)               (1,121.0)                 (964.0)               (1,091.0)
Gross Profit                                     1,015.0                    957.0                   687.0                   846.0
Other Oper. (Exp)/Inc                                (49.0)                   12.0                    8.0                     0.0
Operating Profit                                     966.0                   969.0                  695.0                   846.0
Other Non Opg (Exp)/Inc                                0.0                     0.0                    0.0                     0.0
Associates & JV Inc                               1,506.0                 1,157.0                1,113.0                  1,241.0
Net Interest (Exp)/Inc                            (267.0)                 (317.0)                 (323.0)                 (329.0)
Exceptional Gain/(Loss)                             146.0                   155.0                  492.0                      0.0
Pre-tax Profit                                   2,351.0                 1,964.0                 1,977.0                 1,758.0
Tax                                                (159.0)                 (130.0)                (152.0)                  (126.0)
Minority Interest                                 (173.0)                 (147.0)                   (97.0)                (122.0)
Net Profit                                       2,019.0                 1,687.0                 1,728.0                  1,510.0
Net profit bef Except.                            1,873.0                 1,532.0                1,236.0                 1,510.0
EBITDA                                            2,821.0                 2,535.0                2,214.0                  2,518.0

Sales Gth (%)                                         N/A                    N/A                     (20)                      (7)
EBITDA Gth (%)                                        N/A                    N/A                     (22)                      (1)
Opg Profit Gth                                        N/A                    N/A                     (28)                     (13)
Net Profit Gth (%)                                    N/A                    N/A                   (14.4)                  (10.5)
Gross Margins (%)                                    49.3                   46.1                    41.6                     43.7
Opg Profit Margins (%)                               47.0                   46.6                    42.1                     43.7

Source: Company, DBS Vickers




Page 40
                                                                                                                                                                                    China Port Sector
                                                                                                                                                                China Merchants Hldgs




Financials – Income Statement
                                                            19% CAGR of earnings expected for FY10 and FY11. We
                                                            estimate total revenue to grow at a CAGR of 12% over FY09-
Rapidly growing port business. Revenue from port operation
                                                            FY11, driven by the increasing throughput and handling tariff.
chalked up a CAGR of 46% over FY06-FY08, albeit a 13% drop
                                                            With the improving operating margin and better contributions
in FY09. Net earnings trend was distorted by disposal gains
                                                            from associates/JCEs, recurring net earnings are forecast to
from businesses that were sold-off. Adjusted recurring net
                                                            increase 21% to RMB3,333m in FY10 and 17% to RMB3,899m
profit grew 12% yoy in FY08, but slumped 19% yoy in FY09.
                                                            in FY11.


Sales Trend                                                          Operating Cost Trend                                                   Profitability Trend


HK$ m
    4,500                                                   30.0%                                                                           4000
                                                                        2500
    4,000                                                   25.0%                                                                           3500                                                    36%
    3,500                                                   20.0%       2000                                                                3000
                                                                                                                                                                                                    26%
    3,000
                                                            15.0%                                                                           2500
    2,500                                                               1500                                                                                                                        16%
                                                            10.0%                                                                           2000
    2,000
                                                            5.0%        1000                                                                1500                                                    06%
    1,500
    1,000                                                   0.0%                                                                            1000
                                                                         500                                                                                                                        (04%)
        500                                                 -5.0%                                                                            500
          0                                                 -10.0%        0                                                                    0                                                    (14%)
               2007A    2008A   2009A   2010F    2011F                          2007A   2008A     2009A         2010F    2011F                     2007A    2008A      2009A      2010F     2011F
                                                                                          Other Operating Expenses (-)                                     Net Profit (After-extraordinaries)
              Total Revenue      Revenue Growth (%) (YoY)                                 Cost of Goods Sold (-)
                                                                                                                                                           Net Profit Growth (%) (YoY)




FY Dec                                                               2006A                         2007A                         2008A             2009A                           2010F                     2011F

Turnover                                                               3,961                        3,345                          4,135             3,588                          4,016                     4,493
Cost of Goods Sold                                                   (2,698)                      (1,644)                        (2,163)           (2,055)                        (2,129)                   (2,355)
Gross Profit                                                          1,263                        1,701                          1,972             1,533                          1,887                     2,138
Other Opg (Exp)/Inc                                                    (592)                            8                            (37)                8                          (276)                     (312)
Operating Profit                                                         671                       1,443                          1,935             1,541                          1,611                     1,826
Other Non Opg (Exp)/Inc                                                    0                            0                              0                 0                              0                         0
Associates & JV Inc                                                    2,433                        2,705                          2,663             2,354                          2,877                     3,296
Net Interest (Exp)/Inc                                                 (361)                        (535)                          (584)             (652)                           (669)                     (631)
Exceptional Gain/(Loss)                                                  249                          501                            301               492                               0                         0
Pre-tax Profit                                                        2,992                        4,114                          4,315             3,735                          3,819                     4,491
Tax                                                                      (99)                       (219)                          (289)             (278)                          (235)                      (299)
Minority Interest                                                      (353)                        (350)                          (320)             (219)                          (251)                     (293)
Preference Dividend                                                        0                            0                              0                 0                              0                         0
Net Profit                                                            2,540                        3,545                          3,706             3,238                          3,333                     3,899
Net profit before Except.                                              2,291                        3,044                          3,405             2,746                         3,333                     3,899
EBITDA                                                                 3,482                        4,787                          5,370             4,732                          5,367                     6,045

Sales Gth (%)                                                           N/A                          (15.6)                        23.6             (13.2)                             11.9                   11.9
EBITDA Gth (%)                                                          N/A                           37.5                         12.2             (11.9)                             13.4                   12.6
Operating Profit Gth (%)                                                N/A                          115.1                         34.1             (20.4)                              4.5                   13.4
Net Profit Gth (%)                                                      N/A                           39.6                          4.5             (12.6)                              2.9                   17.0
Effective Tax Rate (%)                                                  3.3                            5.3                          6.7               7.4                               6.2                    6.7

Source: Company, DBS Vickers




                                                                                                                                                                                                            Page 41
China Port Sector
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Financials – Balance Sheet                                                    remaining are repayable from 2011. The loans are classified as
                                                                              current liabilities as they can be recalled anytime with only one
Reasonable liquidity ratio. CMHI’s liquidity ratios were the                  month’s notice.
lowest among its peers, as it has a large portion of short term
debt. Among these HK$5,161m short term debts, a total of                      The group’s net debt to equity ratio remains at a healthy 0.3x
HK$3,304m as at end-09 were due to ultimate/ intermediate                     over FY09-FY11F. Hence, the group has sufficient headroom to
holding company. Only HK$1,652m are repayable in 2010, the                    raise funds for future developments and investments.

Breakdown of Assets                                Breakdown of Capital                                    Financial Leverage & Net Debt to Equity


                                                                                                           13,600
                                                                                                                                                                        1.6
               Inventory -                                                                                 13,100
                                                                                                                                                                        1.4
     Bank, Cash 0.2%       Debtors -                                    ST Debt -                          12,600
     and Liquid             4.0%                                          8.7%                                                                                          1.2
      Assets -                                                                                             12,100
                                                                                    LT Debt -                                                                           1.0
       14.6%
                                                                                     23.1%                 11,600                                                       0.8
                                                        Common                                             11,100                                                       0.6
                                                       Shareholder
                                                                                                           10,600                                                       0.4
                                       Net Fixed        s' Equity -
                                        Assets -          68.2%                                            10,100                                                       0.2
                                        81.2%                                                                        2007A     2008A      2009A     2010F     2011F
                                                                                                             Net Debt/(Cash)                  Net Debt to Equity (X) (R.H.S)
                                                                                                             Financial Leverage (X) (R.H.S)




FY Dec                                                2006A             2007A                     2008A               2009A                           2010F                       2011F

Net Fixed Assets                                      11,103            17,806                    20,347              17,883                      18,504.2                       18,581
Invts in Assocs & JVs                                 17,066            18,572                    20,038              21,529                        25,396                       26,901
Other LT Assets                                        3,889             5,412                     4,893               6,371                         6,371                        6,371
Cash & ST Invts                                          781             1,230                     3,171               3,206                         1,392                        2,201
Other Current Assets                                   2,247             2,666                     2,044               3,479                         1,045                        1,170
Total Assets                                          35,086            45,686                    50,493              52,468                       52,708                        55,225

ST Debt                                                2,705             7,145                     3,886               5,161                          3,509                       3,509
Other Current Liab                                     2,293             2,507                     3,016               1,654                          1,696                       1,851
LT Debt                                                6,082             7,091                    10,246               9,298                          9,298                       9,298
Other LT Liabilities                                     563               468                       631                 736                            736                         736
Shareholder’s Equity                                  20,921            26,842                    30,280              33,563                         35,403                      37,755
Minority Interests                                     2,522             1,633                     2,434               2,056                          2,065                       2,076
Total Cap. & Liab.                                    35,086            45,686                    50,493              52,468                         52,708                      55,225

 Leverage Analysis (x)
 Net Interest Cover                                      1.9               2.7                       3.3                 2.4                           2.4                          2.9
 EBITDA Gross Interest Cover                             9.1               8.5                       8.6                 7.1                           7.9                          9.4
 Total Debt to EBITDA                                    2.5               3.0                       2.6                 3.1                           2.4                          2.1
 Total Debt to Total Assets                              0.3               0.3                       0.3                 0.3                           0.2                          0.2
 Total Debt to Capital                                   0.4               0.5                       0.4                 0.4                           0.3                          0.3
 Net Debt to Equity                                      0.3               0.5                       0.3                 0.3                           0.3                          0.3
 Capex to Debt                                           0.2               0.0                       0.1                 0.0                           0.1                          0.1
 Net Cash / (Debt)                                   (8,006)          (13,006)                  (10,961)            (11,253)                      (11,415)                     (10,606)

 Liquidity Analysis (x)
 Cash Ratio                                              0.2               0.1                      0.5                   0.5                               0.3                    0.4
 Current Ratio                                           0.6               0.4                      0.8                   1.0                               0.5                    0.6
 Quick Ratio                                             0.5               0.3                      0.6                   0.6                               0.5                    0.6

Source: Company, DBS Vickers




Page 42
                                                                                                                                                                               China Port Sector
                                                                                                                                                               China Merchants Hldgs




Financials – Cash Flow
                                                                                                                    Led by its strong revenue growth and improved margin, we
                                                                                                                    project operating cash flow to increase in FY10 and FY11.
Operating cash flow. Operating cashflow is usually much lower
than net earnings as a large portion of earnings from associates                                                    Stable 40% payout ratio. CMHI has consistently paid out over
and JCEs are non-cash. Instead, dividend payout from                                                                40% of earnings as diviends. We expect no changes in payout
associates and JCEs investments has been relatively stable at 50-                                                   ratio, which will means a total of HK$3,095m cash dividends
54%. We expect this payout to remain going forward.                                                                 returned to investors in FY10F and FY11F.

Cash Flow Trend                                                        Free Cash Flow Per Share                                                Free Cash Flow As At Year End



  3,556                                                                1.13

  2,556
                                                                       0.93
  1,556                                                                                                                                        2,000

   556                                                                 0.73
                                                                                                                                               1,500
   -444
                                                                       0.53
 -1,444
                                                                                                                                               1,000
 -2,444
                                                                       0.33
 -3,444                                                                                                                                         500
 -4,444                                                                0.13
          2007A    2008A     2009A     2010F        2011F                     2007A       2008A          2009A       2010F        2011F

          CF from Op   CF from Invt   CF from Fin                             Free Cash Flow Per Share    Free Operating Cash Flow Per Share
                                                                                                                                                       2007A   2008A   2009A    2010F   2011F




FY Dec                                                      2006A                          2007A                                   2008A       2009A                      2010F                  2011F

Pre-Tax Profit                                                2,992                        4,114                                   4,315        3,735                    3,819                   4,491
Dep. & Amort.                                                   435                          767                                     904          979                    1,028                   1,079
Tax Paid                                                       (106)                        (116)                                   (131)        (147)                    (235)                   (299)
Assoc. & JV Inc/(loss)                                      (2,433)                       (2,705)                                 (2,663)      (2,354)                  (2,877)                 (3,296)
Chg in Wkg.Cap.                                               (368)                         (366)                                   (153)        (553)                     (77)                     30
Other Operating CF                                               124                          159                                     387        (158)                     520                     474
Net Operating CF                                                734                        1,830                                   2,332        1,480                    2,178                   2,480

Capital Exp.(net)                                           (2,114)                           440                                 (1,926)        (411)                  (1,500)                 (1,000)
Other Invts.(net)                                               130                            (3)                                   (655)       (208)                       0                       0
Invts in Assoc. & JV                                            297                       (1,645)                                   (485)           0                        0                       0
Div from Assoc & JV                                          1,260                          1,226                                   1,385       1,279                    1,563                   1,791
Other Investing CF                                               48                            47                                      45          18                       12                      10
Net Investing CF                                              (379)                            65                                 (1,636)         678                       76                     800

Div Paid                                                      (365)                       (1,154)                                 (1,431)      (1,374)                  (1,492)                 (1,548)
Chg in Gross Debt                                             (264)                         (537)                                  2,894         (550)                  (2,334)                   (640)
Capital Issues                                                  175                           318                                      39           11                        0                       0
Other Financing CF                                              (60)                          (73)                                  (257)        (210)                    (242)                   (283)
Net Financing CF                                              (514)                       (1,446)                                  1,245       (2,123)                  (4,068)                 (2,471)
Net Cashflow                                                  (159)                           449                                   1,941           35                  (1,814)                     810
Opg CFPS (HK cts)                                              47.5                          92.6                                  102.6          83.6                     92.7                   100.7
Free CFPS (HK cts)                                           (59.5)                          95.8                                    16.8         43.9                     27.9                    60.8

Source: Company, DBS Vickers




                                                                                                                                                                                                Page 43
China Port Sector
China Merchants Hldgs




Financials – ROE Drivers                                                                              disposal gain, core ROAE was 8.6% in FY09. We forecast
                                                                                                      CMHI’s core ROAE to gradually increase to 10.7% in FY11F,
Core ROAE back to double-digit. CMHI’s ROAE maintained                                                given its strong sales growth and improved margins.
above 10% in FY09, aided by disposal gain. Excluding the


ROAE / ROAA Trend (%)                                         Margin Trend (%)                                                    Total Debt & Gross Interest Cover



15.0%                                                                                                                                                                                                   3.4x
                                                               140%
                                                                                                                                  14000
                                                                                                                                                                                                        3.2x
13.0%                                                          120%                                                               12000
                                                                                                                                                                                                        3.0x
                                                                                                                                  10000
11.0%                                                          100%                                                                                                                                     2.8x
                                                                                                                                  8000
 9.0%                                                          80%                                                                                                                                      2.6x
                                                                                                                                  6000
                                                                                                                                                                                                        2.4x
                                                                                                                                  4000
 7.0%                                                          60%
                                                                                                                                  2000                                                                  2.2x
 5.0%                                                          40%                                                                   0                                                                  2.0x
        2007A      2008A       2009A    2010F      2011F              2007A       2008A    2009A     2010F     2011F                      2007A   2008A        2009A          2010F          2011F
  Ret on Avg Equity (ROAE) %     Ret on Avg Assets (ROAA) %     EBITDA Margin %     EBIT Margin %   Net Income Margin %                             Total Debt (+)     Gross Interest Cover (X) (YoY)




FY Dec                                                        2006A                       2007A                        2008A              2009A                                 2010F                          2011F

Profitability Ratios
Sales Growth (%)                                                N/A                       (15.6)                           23.6            (13.2)                                   11.9                        11.9
Gross Margin (%)                                               31.9                        50.9                            47.7             42.7                                    47.0                        47.6
Operating Margin (%)                                           16.9                        43.1                            46.8             42.9                                    40.1                        40.6
Net Profit Margin (%)                                          64.1                       106.0                            89.6             90.2                                    83.0                        86.8
ROAE (%)                                                        N/A                        14.8                            13.0             10.1                                     9.7                        10.7
ROA (%)                                                         N/A                         8.8                             7.7              6.3                                     6.3                         7.2
ROCE (%)                                                        N/A                         3.6                             4.0              2.9                                     3.0                         3.3

Activity Ratios
Debtors Turn (average days)                                     N/A                       186.5                           113.8             79.9                                  85.9                          86.4
Creditors Turn (average days)                                   N/A                       861.1                           633.0            591.6                                 471.2                         436.5
Inventory Turn (average days)                                   N/A                       102.2                            47.9             12.1                                  11.8                          11.2
Total Asset Turnover (x)                                        N/A                         0.1                             0.1              0.1                                   0.1                           0.1
Fixed Asset Turnover (x)                                        N/A                         0.2                             0.2              0.2                                   0.2                           0.2

   Source: Company, DBS Vickers




Page 44
                                                                                                                     China Port Sector
                                                                                                        China Merchants Hldgs




Valuation                                                             P/BV, with a median and average of 1.6x and 1.9x respectively.
                                                                      Currently, it trades at 1.8x P/BV, which is lower than historical
Initiate coverage with BUY rating, TP HK$32.34. We initiate           trading average.
CMHI with a BUY rating and target price of HK$32.34 using
SOTP valuation method. This implies a 23.6x FY10 P/E and 2.2x         We believe the premium rating is justifiable for its consistently
FY10 P/BV, and we believe the stock can re-rate towards our           strong earnings track record and investments in high quality
TP as its ROAE continues its climb back into the mid-teens.           port assets.
Historically, the stock has traded at between 0.7x and 6.4x



SOTP Valuation

                                           Fair value             Value/share                                   Valuation method
                                             (HK$ m)              (HK$/share)

 Consolidated port assets                     31,691                      13.03            DCF, WACC 8.8%, terminal growth 3%
 Other port-related assets                    58,102                      23.88                            DCF, DDM, PE, and cost
 Investment property                               919                     0.38                                 End-09 book value
 Net cash                                     -12,032                     -4.95      End-09 book value, minus declared dividend
 Total                                        78,680                      32.34

 No of shares (m)                                 2,433
 Exchange rate (RMB/HK$)                           1.15

Source: Bloomberg exchange rate closing at Jul 14,2010, DBS Vickers




Valuation of Other Port & Related Investments

 Company                             Fair value           Stake   CMHI’s share         HK$/share        Valuation         FY10F PE
                                      (HK$ m )                       (HK$ m)                             method           multiples

 Shanghai Int’l Port                   100,684            27%             26,721            10.98             DCF             22.0
 CIMC                                   33,669            25%              8,357             3.44               PE            15.0
 Shenzhen Chiwan Wharf                   5,577            29%              1,632             0.67             DCF             12.0
 Modern Terminals                       14,717            27%              3,975             1.63            DDM                9.7
 Zhanjiang Port Group                    4,677            40%              1,884             0.77            DDM              33.7
 Ningbo Daxie                            3,173            45%              1,428             0.59            DDM              24.0
 Qingdao Qianwan United                  5,160            50%              2,580             1.06            DDM               n/m
 Qingdao Qianwan West                      804            49%                394             0.16            DDM              77.7
 CNDI (excluding SCW)                    9,788            37%              3,623             1.49             DCF             13.0
 Other JCEs & associates                                                   5,294             2.18              PE             15.0
 Tianjin Five Continents                33,499              5%             1,809             0.74            DDM              14.5
 Ningbo Port Co.                         1,445            14%                202             0.08             DCF             11.2
 Vung Tau Int'l Container                  413            49%                202             0.08             cost
 Subtotal                                                                 58,102            23.88

Source: Bloomberg exchange rate closing at Jul 14,2010, DBS Vickers




                                                                                                                                 Page 45
China Port Sector
China Merchants Hldgs




                                                                                                                                         market expects CMHI to remain active in its M&A activities to
Premium to the sector average. Generally, CMHI trades at a
                                                                                                                                         consolidate the sector and enhance operating synergies.
25-75% premium to the sector average, reflecting higher
                                                                                                                                         Currently CMHI trade at a 60% premium to the sector average
valuation of A-share associates (especially SIPG) and potential
                                                                                                                                         on P/B basis and a 34% premium on P/E basis.
M&A. Given its successful acquisitions in the past several years,


PE chart CMHI vs. sector average                                                                                                        PB chart CMHI vs. sector average


    (x)                                                                                                                                    (x)
   40                                                                                                                                      6
   35                                                                                                                                      5
   30
   25                                                                                                                                      4
   20                                                                                                                                      3
   15
                                                                                                                                           2
   10
     5                                                                                                                                     1
     0                                                                                                                                     0
          Jan-06
                   May-06
                            Sep-06
                                     Jan-07
                                              May-07
                                                       Sep-07
                                                                Jan-08
                                                                         May-08
                                                                                  Sep-08
                                                                                           Jan-09
                                                                                                    May-09
                                                                                                             Sep-09
                                                                                                                      Jan-10
                                                                                                                               May-10




                                                                                                                                               Jan-06
                                                                                                                                                        May-06
                                                                                                                                                                 Sep-06
                                                                                                                                                                          Jan-07
                                                                                                                                                                                   May-07
                                                                                                                                                                                            Sep-07
                                                                                                                                                                                                     Jan-08
                                                                                                                                                                                                              May-08
                                                                                                                                                                                                                       Sep-08
                                                                                                                                                                                                                                Jan-09
                                                                                                                                                                                                                                         May-09
                                                                                                                                                                                                                                                  Sep-09
                                                                                                                                                                                                                                                           Jan-10
                                                                                                                                                                                                                                                                    May-10
                                                       CMHI                        Average                                                                                                  CMHI                        Average


Source: Bloomberg, DBS Vickers                                                                                                          Source: Bloomberg, DBS Vickers




PE band chart                                                                                                                           PB band chart


 Share Price (HK$)                                                                                                                       Share Price (HK$)
 60                                                                                                                                      80
                                                                                                                               36x       70                                                                                                                         4.5x
 50
                                                                                                                                 29x     60                                                                                                                         3.6x
 40
                                                                                                                                         50
                                                                                                                                 22x                                                                                                                                 2.6x
 30                                                                                                                                      40
                                                                                                                               15x       30
 20                                                                                                                                                                                                                                                                 1.6x
                                                                                                                                         20
 10                                                                                                                              7x                                                                                                                                 0.7x
                                                                                                                                         10
  0                                                                                                                                       0
       Jan-99
      Jun-99
      Nov-99
      Sep-00
      Feb-01
      Dec-01
      Apr-00



      May-02
      Oct-02
      Mar-03




      Dec-06




                                                                                                                                               Jan-99
                                                                                                                                              Jun-99
                                                                                                                                              Nov-99
                                                                                                                                              Sep-00
                                                                                                                                              Feb-01
                                                                                                                                              Dec-01
                                                                                                                                              May-02
                                                                                                                                              Oct-02
                                                                                                                                              Mar-03
        Jul-01



      Aug-03
       Jan-04
      Nov-04
      Sep-05
      Feb-06


      Oct-07




                                                                                                                                              Apr-00
      Jun-04
      Apr-05



      May-07
      Mar-08




                                                                                                                                                Jul-01



                                                                                                                                              Aug-03
                                                                                                                                               Jan-04
                                                                                                                                              Jun-04
                                                                                                                                              Nov-04
                                                                                                                                              Sep-05
                                                                                                                                              Feb-06
                                                                                                                                              Dec-06
        Jul-06




       Jan-09
      Nov-09




                                                                                                                                              Apr-05



                                                                                                                                              May-07
                                                                                                                                              Oct-07
                                                                                                                                              Mar-08
      Aug-08
      Jun-09
      Apr-10




                                                                                                                                                Jul-06



                                                                                                                                              Aug-08
                                                                                                                                               Jan-09
                                                                                                                                              Jun-09
                                                                                                                                              Nov-09
                                                                                                                                              Apr-10




Source: Bloomberg, DBS Vickers                                                                                                          Source: Bloomberg, DBS Vickers


                                                                                                                                          RMB5.3ps, representing 31.5x FY09 P/E and 4.0x FY09 P/BV.
Potential re-rating from asset listings. CMHI’s investment for
                                                                                                                                          This may double our estimate for CMHI’s investment of NPC.
NPC is currently valued at HK$0.73 per share, using DCF
                                                                                                                                          Although we think the pricing is relatively high, as SIPG and
method with an 8.8% WACC. This translates to 14.4x FY10F
                                                                                                                                          TPC was trading at 21.5x FY09 P/E (2.6x FY09 P/BV) and 16.9x
P/E (15.9x FY09 P/E, and 2.0x FY09 P/BV). However, according
                                                                                                                                          FY09 P/E (1.4x P/BV) respectively. We use SIPG to compare
to the IPO prospectus of NPC, the implied IPO price is




Page 46
                                                                                                                    China Port Sector
                                                                                                        China Merchants Hldgs



with NPC due to geographical proximity and similar market               premium over the previous investment costs. Bulk-focused
cap after NPC’s listing. TPC is also another close peer of NPC          terminal operators in A-share market are trading at 2.2x
as both are bulk focused operator with similar port operation           FY10F P/BV. Using the same P/BV ratio, the planned listing of
revenue.                                                                ZPG may add HK$0.87 to CMHI’s valuation.
                                                                        So in total, the successful listing of NPC and ZPG could add
CMHI’s investment for ZPG is currently valued at HK$0.80 per            another HK$1.60 to CMHI valuation or 5% to our TP.
share using DCF valuation method. The valuation is 5.0%


Peers Valuation Table

                                              Cur                                PE                  ROE                    PB
                                             Mkt
                                                           Px
 Company                         Ticker       Cap                 PEG
                                                          Last           09Y    10Y    11Y    09Y     10Y    11Y     09Y    10Y    11Y
                                             (US$
                                              m)
 H-share ports ^                                                  0.8    16.5   14.5   12.8    7.8    9.4     9.3     1.2   1.2     1.2
 China Merchants Holdings         144.HK      8,360       26.70   1.1    20.1   19.5   16.7   10.1    9.7    10.7     1.9   1.8     1.7
 COSCO Pacific                   1199.HK      3,419        9.80   0.3    16.5    9.6   11.0    6.5   10.6     8.5     1.0   0.9     0.9
 Dalian Port PDA                 2880.HK      1,216        3.23   0.9    13.5   12.3   10.5    9.3   10.1    11.4     1.2   1.2     1.1
 Xiamen Int'l Port               3378.HK        488        1.39   0.8    16.1   13.3   12.0    5.4    6.3     6.7     0.9   0.8     0.8
 Tianjin Port Dev                3382.HK      1,355        1.71   NA      NA    17.7   14.1    NA    10.5     9.3     0.9   1.4     1.3
 A-share container ports                                          NA     20.7   18.9   17.2   12.7   12.3    12.8     2.6   2.4     2.3
 Shenzhen Chiwan Wharf         000022.CH      1,115       12.19   NA     17.7   15.5   13.9   15.4   16.5    16.7     2.7   2.5     2.3
 Shenzhen Yantian Port         000088.CH      1,154        6.28   NA     17.5   17.0   15.8   11.0    9.9     9.6     1.9   1.7     1.8
 Shanghai Int'l Port Group     600018.CH     12,115        3.91   NA     21.5   18.7   17.5   11.7   13.0    13.3     2.6   2.4     2.2
 A-share bulk ports                                               NA     38.8   24.8   20.7    7.9    9.3    10.4     2.4   2.2     1.9
 Tianjin Port                  600717.CH      2,015        8.15   NA     16.9   16.2   13.8    8.0    7.4     8.0     1.4   1.3     1.3
 Rizhao Port                   600017.CH      1,235        5.54   NA     22.4   16.8   14.4    9.1   12.2    13.0     2.0   1.8     1.7
 Jiangsu Lianyungang Port      601008.CH        443        5.58   NA     31.9   22.3   18.2    5.7    7.4     9.4     1.9   1.6     1.5
 Xiamen Port Development       000905.CH        567        7.24   NA     38.1    NA     NA     NA     NA      NA      NA    NA      NA
 Beihai Beihai Port            000582.CH        228       10.89   NA      NA     NA     NA     NA     NA      NA      NA    NA      NA
 Yingkou Port Liability        600317.CH        975        6.02   NA     31.5   29.1   24.8    6.2    6.3     7.8     2.0   1.8     1.8
 Nanjing Port                  002040.CH        278        7.65   NA      NA     NA     NA     NA     NA      NA      NA    NA      NA
 Chongqing Gangjiu             600279.CH        372       11.02   NA     61.2   38.7   31.9    NA     NA      NA      NA    3.1     NA
 Wuhu Port                     600575.CH        832       15.84   NA     78.4   20.8   18.1   10.6   13.4    13.7     4.5   3.2     3.1
 Jinzhou Port                  600190.CH      1,025        4.71   NA     30.0   29.4   23.6    NA     NA      NA      NA    NA      NA
 Tangshan Port                 600100.CH      1,154         7.8   0.7     NA    23.4   18.1    NA    10.1    12.4     NA    2.1     1.9
 Container manufacturers                                          NA     32.9   17.4   11.5    7.3    8.8    12.6     1.6   1.6     1.5
 Singamas Container               716.HK        502        1.62   NA      NA    18.9   11.0    NA     6.2    11.7     1.1   1.3     1.2
 China Int’l Marine            000039.CH      4,064       11.81   NA     32.9   15.8   12.1    7.3   11.4    13.6     2.1   2.0     1.8

Source: Bloomberg closing @ Jul 14, 2010, ^ DBS Vickers




                                                                                                                                  Page 47
China Port Sector
China Merchants Hldgs



Appendix: Key Management Team
Manager               Current                                                                         Previous Experience Ownership
                Appointment
Fu Yuning    Chairman of the      Graduated from Dalian Institute of Technology in the PRC with a Bachelor Degree in Port    539,029
              Company and a          and Waterway Engineering and obtained a Doctorate Degree in Offshore Engineering shares and
 (53)
             Director and the     from Brunel University, United Kingdom and worked as a Post-Doctorate research fellow.     400,000
            President of CMG                                                                                                 options
                                     Independent Non-executive Director of Integrated Distribution Services Group Ltd and
                                                                                                                          (0.0386%)
                                                                                                 Sino Land Company Ltd.
                                                                               Various positions in the Company and CMG
                                 Was appointed to the Board of Directors on Jan 1999, and was appointed as the Chairman
                                                                                           of the Company on Feb 2000.

Li Yinquan Executive Director         Graduated from the Shaanxi Institute of Finance and Economics with a Bachelor of        450,000
             of the Company,     Economics, and holds a Master in Economics from The People’s Bank of China Graduate          options
(54)
           Vice President and School in Beijing, and holds a Master in Banking and Finance from the Finafrica Institute in (0.0185%)
                  CFO of CMG                                                                                 Milan, Italy.
                                   Worked in the Agricultural Bank of China from 1985 to 1999 where his last position was
                                    Deputy General Manager of the Hong Kong branch, prior to joining the CMG in 2000.
                                                                              Various positions in the Company and CMG.

Hu Zheng    Executive Director                                                Various positions in the Company and CMG      700,000
             of the Company,                                                                                                options
(54)                                Vice Chairman of The Hong Kong Chinese Enterprises Association, China Association of
             Vice President of                                                                                           (0.0288%)
                                            Purchasing and Logistics and China Association of Communications Enterprises
                         CMG
                                                                                                           Management.
                                  Obtained a Master Degree in Business Administration from Murdoch University, Australia
                                                                     and holds a professional title of “Senior Economist”.

Meng Xi     Executive Director     Graduated from the Beijing Construction Engineering College and was awarded “Senior          200,000
             of the Company,                                                                       Engineer” in the PRC.        options
(53)
             Vice President of                                                                                               (0.0082%)
                                                                Joined the CMG in 1983 and held various positions in CMG.
                         CMG

Su          Executive Director     Graduated from Ship Navigation and Harbour Superintendency Administration Specialty      350,000
Xingang       of the Company,      of Navigation Department of Dalian Maritime University and holds the professional title  options
            Vice President and                                                                     of “Senior Engineer”. (0.0144%)
(51)
              Chief Economist
                                                                              Various positions in the Company and CMG.
                       of CMG
                                                                                    A Director and Vice Chairman of SIPG.
                                 Served as Deputy Division Chief of Department of Transportation Administration, Assistant
                                   Director General of Department of Water Transportation of Ministry of Communications,
                                       Vice President of China Changjiang National Shipping (Group) Corp., Deputy Director
                                            General, Director General of Department of Water Transportation of Ministry of
                                                                                     Communications, before joining CMG.

Yu Liming   Executive Director Graduated from the South China University of Science and Technology in 1982 and holds a          350,000
              of the Company,                                      PhD Degree at the Business School of Fudan University.        shares,
(47)
                     Vice Chief                                                                                                 500,000
                                    Studied in The International Institute of Infrastructural Hydraulic and Environmental
            Economist of CMG                                                                                                    options
                                 Engineering (IHE), Delft University of Holland and Port of Rotterdam from 1987 to 1988.
                                                                                                                             (0.0349%)
                                                                                                      Joined CMG in 1984

Source: Company




Page 48
                                                                                                              China Port Sector
                                                                                                    China Merchants Hldgs



Appendix: Key Management Team (continued)
Manager              Current                                                                      Previous Experience Ownership
               Appointment
Hu Jianhua Executive Director                                                            Joined the Company in 2007.
              and Managing
(47)                          Graduated from the Dalian University of Technology in the PRC with a Bachelor Degree in
              Director of the
                                         Port and Waterway Engineering and obtained Master Degree in Construction
                   Company
                                  Management at the University of Birmingham of the United Kingdom and his Doctor
                                                Degree in Business Administration at the University of South Australia.
                                  Was General Manager of Overseas Business Department of China Harbour Engineering
                                     Company Group, Managing Director of Hong Kong Zhen Hua Engineering Co., Ltd,
                                   Deputy Chief Economist cum General Manager of Overseas Division of China Harbour
                               Engineering Company Group, Managing Director of China Harbour Engineering Company
                                                                                   Ltd. Before joining the Company.
                                    Also a fellow member of the Hong Kong Institution of Engineers (FHKIE) and fellow
                                  member of Institution of Civil Engineering Surveyors of the United Kingdom (FlnstCES)
                                                                                                           respectively.

Wang                 Executive      Director of CIMC, Vice Chairman of SIPG, and Chairman of China Merchants (Pacific).     506,989
Hong         Director, Deputy                                                                                                shares,
                               Graduated from Dalian Maritime University in the PRC in Marine Engineering in 1982, as a
                    Managing                                                                                                150,000
(47)                             holder of Master of Business Administration of Graduate School of Beijing University of
            Director and COO                                                                                                options
                                    Science and Technology, and a holder of PhD of Management of Graduate School of
             of the Company,                                                                                             (0.0270%)
                                                                                       China Academy of Social Science.
                  and General
                  Manager of       Served as Engineer in COSCO Guangzhou, General Manager of Shipping Department,
                 Strategy and     General Manager of Finance and Accounting Department, and Vice President of China
                      Research Communications Import & Export Corp., Managing Director of Hoi Tung Marine Machinery
               Department of        Suppliers Ltd., General Manager of Performance Evaluation Department and Human
                          CMG                                     Resources Department of China Merchants Group Ltd.

Liu Yunshu Executive Director     Obtained his Master of Business Administration at Roosevelt University of America.    400,000
                  and Deputy                                                                                            options
(45)                                     A committee member of Member Association (Logistics enterprises) of China
            General Manager                                                                                          (0.0164%)
                              Communication and Transportation Association and the Vice Chairman of Shenzhen Ports
             of the Company.
                                                                                                        Association.
                                                                                           Joined the Company in 2004.

Source: Company




                                                                                                                             Page 49
China Port Sector
China Merchants Hldgs
Income Statement (HK$ m)                                                    Balance Sheet (HK$ m)
FY Dec                          2008A      2009A       2010F      2011F     FY Dec                        2008A      2009A       2010F      2011F
Turnover                         4,135      3,588      4,016      4,493     Net Fixed Assets              20,347     17,883     18,504     18,581
Cost of Goods Sold              (2,163)    (2,055)    (2,129)    (2,355)    Invts in Assocs & JVs         20,038     21,529     25,396     26,901
Gross Profit                     1,972      1,533      1,887       2,138    Other LT Assets                4,893      6,371      6,371      6,371
Other Opg (Exp)/Inc                 (37)         8      (276)       (312)   Cash & ST Invts                3,171      3,206      1,392      2,201
Operating Profit                 1,935      1,541      1,611       1,826    Inventory                         41         40         41         47
Other Non Opg (Exp)/Inc               0          0          0           0   Debtors                          684        886      1,004      1,123
Associates & JV Inc              2,663      2,354      2,877       3,296    Other Current Assets           1,319      2,553          0          0
Net Interest (Exp)/Inc            (584)      (652)      (669)      (631)    Total Assets                  50,493     52,468     52,708     55,225
Exceptional Gain/(Loss)             301        492          0          0
Pre-tax Profit                   4,315      3,735      3,819       4,491    ST Debt                        3,886      5,161      3,509      3,509
Tax                               (289)      (278)      (235)       (299)   Other Current Liab             3,016      1,654      1,696      1,851
Minority Interest                 (320)      (219)      (251)       (293)   LT Debt                       10,246      9,298      9,298      9,298
Preference Dividend                   0          0          0           0   Other LT Liabilities             631        736        736        736
Net Profit                       3,706      3,238      3,333      3,899     Shareholder’s Equity          30,280     33,563     35,403     37,755
Net profit before Except.        3,405      2,746      3,333      3,899     Minority Interests             2,434      2,056      2,065      2,076
                                                                            Total Cap. & Liab.            50,493     52,468     52,708     55,225
EBITDA                           5,370      4,732      5,367      6,045
Sales Gth (%)                     23.6      (13.2)      11.9       11.9     Non-Cash Wkg. Cap               (972)     1,825       (651)      (681)
EBITDA Gth (%)                    12.2      (11.9)      13.4       12.6     Net Cash/(Debt)              (10,961)   (11,253)   (11,415)   (10,606)
Opg Profit Gth (%)                34.1      (20.4)       4.5       13.4
Effective Tax Rate (%)             6.7        7.4        6.2        6.7
Cash Flow Statement (HK$ m)                                                 Rates & Ratios
FY Dec                          2008A      2009A       2010F      2011F     FY Dec                        2008A      2009A       2010F      2011F
Pre-Tax Profit                   4,315       3,735      3,819      4,491    Gross Margin (%)             47.7          42.7       47.0       47.6
Dep. & Amort.                      904         979     1,028       1,079    Opg Profit Margin (%)        46.8          42.9       40.1       40.6
Tax Paid                         (131)       (147)      (235)      (299)    Net Profit Margin (%)        89.6          90.2       83.0       86.8
(Pft)/ Loss on disposal of FAs    (327)        (22)         0          0    ROAE (%)                     13.0          10.1         9.7      10.7
Assoc. & JV Inc/(loss)         (2,663)     (2,354)    (2,877)    (3,296)    ROA (%)                        7.7           6.3        6.3        7.2
Non-Cash Wkg.Cap.                (153)       (553)        (77)        30    ROCE (%)                      4.0           2.9        3.0         3.3
Other Operating CF                 387       (158)        520        474    Div Payout Ratio (%)         44.4          42.8       42.8       42.8
Net Operating CF                 2,332      1,480      2,178       2,480    Interest Cover (x)            3.3           2.4        2.4        2.9
Capital Exp.(net)              (1,926)        (411)   (1,500)    (1,000)    Asset Turnover (x)            0.1            0.1        0.1        0.1
Other Invts.(net)                (655)       (208)          0          0    Debtors Turn (days)         113.8          79.9       85.9       86.4
Invts in Assoc. & JV              (485)           0          0         0    Creditors Turn (days)       633.0         591.6      471.2      436.5
Div from Assoc & JV              1,385       1,279      1,563      1,791    Inventory Turn (days)        47.9          12.1       11.8       11.2
Other Investing CF                  45          18         12         10    Current Ratio (x)             0.8            1.0        0.5        0.6
Net Investing CF               (1,636)         678         76        800    Quick Ratio (x)               0.6           0.6        0.5         0.6
Div Paid                       (1,431)     (1,374)    (1,492)    (1,548)    Net Debt/Equity (X)            0.3           0.3        0.3        0.3
Chg in Gross Debt                2,894        (550)   (2,334)       (640)   Capex to Debt (%)            13.6            2.8      11.7         7.8
Capital Issues                      39          11          0          0    Z-Score (X)                   1.8           1.8        2.8        3.0
Other Financing CF                (257)      (210)      (242)      (283)    N.Cash/(Debt)PS (HK$)        (4.5)         (4.6)      (4.7)      (4.4)
Net Financing CF                 1,245     (2,123)    (4,068)    (2,471)    Opg CFPS (HK$)               1.03          0.84       0.93       1.01
Net Cashflow                     1,941          35    (1,814)        810    Free CFPS (HK$)              0.17          0.44       0.28       0.61
Interim Income Statement (HK$ m)                                            Segmental Breakdown (HK$ m)
FY Dec                         1H2008      2H2008     1H2009     2H2009     FY Dec                         2008A     2009A       2010F      2011F
Turnover                         2,057      2,078      1,651       1,937    Revenues
Cost of Goods Sold              (1,042)    (1,121)     (964)     (1,091)      Port operations              4,103      3,556      3,984      4,461
Gross Profit                     1,015        957        687         846      Gross rental income from        32         32         32         32
Other Oper. (Exp)/Inc               (49)        12         8           0    investment properties
Operating Profit                   966         969       695         846      Other businesses                 0          0          0          0
Other Non Opg (Exp)/Inc               0          0         0           0      Elimination                      0          0          0          0
Associates & JV Inc              1,506      1,157      1,113      1,241     Total                          4,135      3,588      4,016      4,493
Net Interest (Exp)/Inc            (267)      (317)     (323)       (329)    Operating profit
Exceptional Gain/(Loss)             146        155       492           0      Port operations              1,621      1,463      1,722      1,954
Pre-tax Profit                   2,351      1,964      1,977       1,758      Gross rental income from       406        200         25         25
Tax                               (159)      (130)     (152)       (126)    investment properties
Minority Interest                 (173)      (147)       (97)      (122)      Other businesses                 0          0          0          0
Net Profit                       2,019      1,687      1,728       1,510      Elimination                    (92)      (122)      (137)      (153)
Net profit bef Except.           1,873      1,532      1,236      1,510     Total                          1,935      1,541      1,611      1,826
EBITDA                           2,821      2,535      2,214       2,518    Operating profit Margins
                                                                              Port operations                39.5      41.1       43.2       43.8
Sales Gth (%)                      N/A        N/A      (19.7)       (6.8)     Gross rental income from    1,268.8     625.0       78.1       78.1
EBITDA Gth (%)                     N/A        N/A      (21.5)       (0.7)   investment properties
Opg Profit Gth                     N/A        N/A      (28.1)     (12.7)      Other businesses                N/A        N/A       N/A        N/A
Net Profit Gth (%)                 N/A        N/A      (14.4)     (10.5)      Elimination                     N/A        N/A       N/A        N/A
Gross Margins (%)                 49.3       46.1        41.6       43.7    Total                            46.8       42.9      40.1       40.6
Opg Profit Margins (%)            47.0       46.6        42.1       43.7
Net Profit Margins (%)            98.2       81.2      104.7        78.0




Page 50
                                                    China Port Sector
                                              China Merchants Hldgs




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                                                               Page 51
China Port Sector
COSCO Pacific
Bloomberg: 1199 HK | Reuters: 1199.HK




BUY HK$9.80 HSI : 20,561                                                                      Laden with value
(Initiate Coverage)
Price Target : 12-Month HK$ 11.83                                                             •     5th largest terminal operator in the world, with a focus in
Potential Catalyst: Rebound of foreign trade, acquisition of Yantian port                           China
                                                                                              •     2nd largest container leasing company, supported by its
Analyst
Ken He +86 21 6888 3375                                                                             parent, the 7th largest container liner operator
ken_he@hk.dbsvickers.com                                                                      •     Trading at 0.9x book value whilst core ROAE looks set to
Paul YONG CFA +8621 6888 3372
                                                                                                    grow to 8% by FY11F
paulyong@dbsvickers.com                                                                       •     Initiate coverage with BUY rating and HK$11.83 TP

Price Relative                                                                                A basket of container businesses, with focus on terminal
          HK$                                                       Relative Index
                                                                                              operations. COSCO Pacific (CP), a subsidiary of China’s largest
       28.10
                                                                               206
                                                                                              shipping liner – China COSCO, provides container terminal
       23.10
                                                                               186
                                                                               166
                                                                                              handling and container leasing services worldwide. Its focus is
       18.10
                                                                               146
                                                                               126
                                                                                              on terminal operations, with investments in all top 8 ports in
       13.10                                                                   106
                                                                               86
                                                                                              China, as well as in various ports worldwide. CP also owns
        8.10                                                                   66
                                                                               46
                                                                                              22% stake in the largest container manufacturer.
        3.10                                                                26
           2006             2007            2008             2009        2010


           COSCO Pacific (LHS)                      Relative HSI INDEX (RHS)
                                                                                              Leveraging on global recovery. Given its balanced terminal
                                                                                              portfolio nationwide and overseas, CP is expected to be fully
                                                                                              exposed to recovering global trade, especially the surge in
Forecasts and Valuation
                                                                                              China-world trade. In addition, with a high operating leverage,
                                                                                              its container leasing business is more leveraged to ride on
FY Dec (US$ m)                          2008A          2009A        2010F           2011F     recovery.
Turnover                                     338             349      466              508
EBITDA                                      389              290      443              532
Pre-tax Profit                               275             189      368              342    Concerns over Piraeus port overdone. Worries over this
Net Profit                                   275             173      335              312    acquisition has led to a sharp drop in CP’s share price recently
Net Pft (Pre Ex.)                            250             141      243              312    but we believe market reaction was overdone, and its share
EPS (US$)                                   0.12            0.08     0.13             0.11
                                                                                              price is appealing currently. Year-to-date operations have
EPS (HK$)                                   0.95            0.60     1.02             0.89
EPS Gth (%)                               (35.9)           (37.4)    70.8            (12.1)   exceeded management’s expectations. In addition, substantial
Diluted EPS (HK$)                           0.85            0.53     0.82             0.96    labour costs saving are expected in 2H10 after the
DPS (HK$)                                   0.38            0.24     0.41             0.36    replacement of high-paid workers.
BV Per Share (HK$)                          8.83            9.46    10.82            10.75
PE (X)                                      10.3            16.5      9.6             11.0
P/Cash Flow (X)                             11.9            15.9     13.7             19.5    Undemanding valuation. We forecast CP’s core earnings will
P/Free CF (X)                                 nm              nm      nm                nm    grow at a CAGR of 49% over FY09-FY11. Based on our SOTP
EV/EBITDA (X)                               10.1            14.3     10.7               9.9   valuation, our TP is HK$11.83, implying 16.9x FY10 core
Net Div Yield (%)                            3.9              2.4     4.1               3.6
P/Book Value (X)                             1.1              1.0     0.9               0.9   earnings and 1.2x FY10 P/BV. Currently CP is trading at 0.9x
Net Debt/Equity (X)                          0.4              0.4     0.4               0.4   FY10 P/BV, with core ROE projected to expand to 8.0% by
ROAE (%)                                    10.4              6.5    10.6               8.5   FY11. Peers are trading at average of 1.2x P/BV.
Earnings Rev (%):                                                     New             New
Consensus EPS (HK$):                                                  0.86            0.84        At A Glance
                                                                                                  Issued Capital (m shrs)                            2,712
                                                                                                  Mkt. Cap (HK$m/US$m)                      26,573 / 3,420
ICB Industry: Industrials                                                                         Major Shareholders
ICB Sector: Industrial Transportation                                                                  China COSCO Holdings (%)                      42.7
Principal Business: Engaging in shipping container leasing services                                    JPMorgan Chase & Co. (%)                        8.2
and container terminal operating services worldwide.                                              Free Float (%)                                     49.1
Source of all data: Company, DBSV, Bloomberg, HKEX                                                Avg. Daily Vol.(‘000)                            34,138




Page 52
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-SGC / sa- DC
                                                                                                                      China Port Sector
                                                                                                                        COSCO Pacific




Company Background                                                    CMHI, in the largest container manufacturer in the world –
                                                                      China Int’l Marine Containers (Group) Co., Ltd. (CIMC).
Integrated port-related services provider. COSCO Pacific Ltd. (CP)
is an integrated port-related service provider with a balanced        Owned by the largest shipping liner. CP is 42.7%-owned by
terminal portfolio across the PRC. It started out as a container      China COSCO Holding Co., Ltd. (China COSCO), the largest
leasing company in 1987, and was listed on the HKEx on Dec            shipping liner in China and the seventh largest in the world in
19, 1994. Following a number of acquisitions and through              2009. In addition, CP is ultimately owned by the COSCO Group,
organic expansion, CP is currently involved in a basket of            which is a SOE and the largest shipping enterprise in China.
container businesses, including container handling, container         Supported by its parent group, CP has gradually beefed up its
leasing and management, and container manufacturing. In               terminals businesses through asset injections by the parent
2009, CP was ranked the second largest container leasing              group, and enjoyed growing container leasing businesses
operator in terms of fleet capacity and the fifth largest container   supported by its sister company – COSCO Container Lines Co.,
terminal operator by gross throughput, in the world. It also          Ltd. (COSCON).
owns a 21.8% stake, being the second largest shareholder after

 COSCO Pacific’s Structure


                                                        China Ocean Shipping
                                                         (Group) Company

                                                                   54.55%

             COSCO Container Lines     100%            China COSCO Holdings       45.45%                 Public
             Co., Ltd. (COSCON)                               Co., Ltd.                             H-share 1919.HK


             COSCO Bulk Carrier                                    42.72%
             Co., Ltd.
             Qingdao Ocean
             Shipping Co., Ltd.        100%
             COSCO (HK) Shipping                          COSCO Pacific Ltd.      57.28%                 Public
             Co., Ltd.                                                                              H-share 1199.HK
             Shenzhen Ocean
             Shipping Co., Ltd.




          Terminals and related           Container leasing,               Container                        Logistics business
          businesses                      management and sale              manufacturing business
                                          businesses                                                        COSCO Logistics Co.,
          Balanced geographical                                            China International              Ltd. (49%)
          coverage of terminals in        Florens Container                Marine Containers
          home and abroad                 Holdings Ltd. (100%)             (Group) Co., Ltd.                Disposed on Mar 30,
                                                                           (000039/200039.CH)               2010, with total
          Terminal related services       Florens Container                (21.8%)                          consideration of
                                          Services Co., Ltd.                                                RMB2bn
                                          (100%)




 Source: Company, DBS Vickers




                                                                                                                                   Page 53
China Port Sector
COSCO Pacific



 Summary of Port Operation Assets (including Greenfield Terminals)

                                                                                       Design
                                                                  Depth      Quay
                                             2        No. of                          capacity
  Terminal                           Area (m )                 alongside   length                Category    Stake          Status
                                                      Berths                         (mn TEU/
                                                                     (m)      (m)
                                                                                       mn mt)
  Bohai Rim (BR)
  Qingdao Qianwan                      2,250,000         11         17.5    3,400          6.5   Container    20%              JCE
  Qingdao Qianwan United                                  9    15.0-20.0    3,408          5.3   Container     8%         Sub-JCE
  Qingdao Cosport Int'l                  186,800          1         13.5      349          0.6   Container    50%              JCE
  Dalian DPCT                          1,250,000          4    13.5-17.8    2,096          2.5   Container    20%        Associate
  Dalian Automobile                      540,000          2         11.0      550          0.4       Auto     30%        Associate
                                                                                                                              AFS
  Tianjin Five Continents                                                                        Container    14%
                                        550,000           4         15.7    1,202          1.5                         investment
  Tianjin Port Euroasia                 720,000           3         15.5    1,100          1.8   Container    30%              JCE
  Yingkou Container                     426,000           2         14.0      576          1.0   Container    50%              JCE
  Subtotal (container)                                   34                               19.2
  Attributable (container)                                                                 3.8

  Yangtze River Delta (YRD)
  Shanghai Pudong Int'l                 500,000           3         12.0      940          2.3   Container    30%              JCE
  Shanghai Container                    830,000          10     9.4-10.5    2,281          3.7   Container    10%        Associate
  Ningbo Yuan Dong                      150,000           3         15.0    1,610          1.8   Container    20%              JCE
  Zhangjiagang Win Hanverky             446,123           3         10.0      722          1.0   Container    51%       Subsidiary
  Yangzhou Yuanyang Int'l               350,000           1         12.0    1,702          0.5   Container    56%       Subsidiary
                                                          5     8.0-12.0    1,702          6.6        Bulk    56%
  Nanjing Port Longtan                  930,000           5         12.0      910          1.0   Container    20%               JCE
  Subtotal (container)                                   25                               10.3
  Attributable (container)                                                                 2.4

  Pearl River Delta (PRD) and Southeast Coast
  COSCO-HIT                           292,360             2         15.5    1,088          1.8   Container    50%              JCE
  Yantian Int'l                     1,180,000             5    14.0-15.5    1,650          4.5   Container    15%        Associate
  Yantian Int'l Phase III             900,000             8         16.0    3,297          7.2   Container    13%        Associate
  Guangzhou Oceangate               2,730,000             6         14.5    2,100          4.2   Container    39%              JCE
  Quan Zhou Pacific                                       4     7.0-15.1    1,676          1.6   Container    71%       Subsidiary
                                                          2      5.1-9.6    1,676          1.0        Bulk    71%
  Jinjiang Pacific                                        1    10.0-15.0    1,475          0.3   Container    80%       Subsidiary
                                                          1    10.0-15.0    1,475          1.5        Bulk    80%
  Xiamen Ocean Gate*                   1,221,480          0         17.0    1,508          0.0   Container    70%       Subsidiary
  Subtotal (container)                                   29                               19.6
  Attributable (container)                                                                 5.6

  Overseas
  COSCO-PSA                              228,000          2         15.0      720          1.0   Container    49%              JCE
  Antwerp Gateway                      1,263,000          4         17.0    2,450          3.5   Container    20%        Associate
  Suez Canal Container                   600,000          4         16.5    2,400          5.1   Container    20%        Associate
  Piraeus Container                      526,037          4    14.0-16.0    2,783          3.7   Container   100%       Subsidiary
  Subtotal (container)                                   14                               13.3
  Attributable (container)                                                                 5.9

  Total (container)                                     102                         Gross 55.9mn TEU, attributable 14.7mn TEU
  Total (bulk)                                            8                         Gross 9.1mn mt, attributable 5.6mn mt
  Total (automobile)                                      2                         Gross 0.4mn unit, attributable 0.1mn unit

 Source: Company, DBS Vickers, * under construction




Page 54
                                                                                                                                         China Port Sector
                                                                                                                                              COSCO Pacific




Sales Trend                                                                  Operating Profit Trend (Excluding corporate and others)


 US$m                                                                         US$m
 400                                                                          180
 350                                                                          160

 300                                                                          140
                                                                              120
 250
                                                                 230          100
 200                                              253
                                                                               80          147                127                128
                 269            248
 150                                                                                                                                                83
                                                                               60
 100                                                                           40
  50                                                             120           20
                                                  85
                 28             51                                                         12                 22                 20                 20
      0                                                                         0
                 2006           2007           2008              2009                      2006               2007               2008               2009
                   Container terminal                Container lease                        Container terminal                      Container lease

Source: Company, DBS Vickers                                                 Source: Company, DBS Vickers


Terminal operations                                                            and 0.6mn vehicles in 2009 (operated capacity: 52.1mn TEUs,
                                                                               9.1mn mt bulk cargo, and 0.4mn vehicles). CP has a balanced
Wide domestic footprint, with overseas presence. CP                            and diversified terminal portfolio across the nation with
commenced its terminal operating business with the                             investments in all the top 8 ports in China. CP started its
establishment of a JV – COSCO HIT (2 berths) in the HK hub in                  global expansion in 2003 with the establishment of a JV in the
1995 and has not stopped growing since. CP currently has                       port of Singapore, which is the first terminal JV in Singapore.
equity stakes in 142 berths with an aggregate annual                           It currently operates 4 terminals with 22 berths overseas.
handling capacity of 70.1mn TEUs, 11.8mn mt bulk cargo,

Yearly Container Throughput (mn TEU)                                         Monthly Container Throughput (mn TEU)


                                                                              4.3
 50                                                     45.9
                                                                 43.5         4.1
 45
                                           39.0                               3.9
 40
 35                             32.4                                          3.7
 30                    25.9                                                   3.5
 25       22.4                                                                3.3
 20                                                                           3.1
 15                                                       10.0         9.7    2.9
                                               8.1
 10                       5.0        6.2
             4.2                                                              2.7
  5
                                                                              2.5
  0
                                                                                                        Apr




                                                                                                                                              Oct
                                                                                                  Mar




                                                                                                                           Jul




                                                                                                                                                           Dec
                                                                                                                                  Aug
                                                                                     Jan

                                                                                           Feb




                                                                                                                     Jun




                                                                                                                                        Sep
                                                                                                              May




                                                                                                                                                     Nov




           2004         2005     2006       2007         2008     2009
            Gross throughput               Equity based throughput                         2007                2008               2009                2010

Source: Company, DBS Vickers                                                 Source: Company, DBS Vickers




                                                                                                                                                             Page 55
China Port Sector
COSCO Pacific



                                                                                     materials. By end 2009, CP was operating 8 bulk cargo berths
Acquisitions boost growth. Supported by its accelerated
                                                                                     with annual handling capacity of up to 9mn mt. Actual bulk
expansion pace and its sister company – COSCO Container
                                                                                     throughput handled by the terminals CP invested in continued
Lines, CP’s attributable throughput volume registered 24%
                                                                                     to soar, by 24% y-o-y to 17mn mt in FY09, fuelled by strong
CAGR (20% gross throughput volume) during 2004-2008
                                                                                     domestic demand for raw materials.
although there was a slight decline in 2009 (attributable: -3%,
gross: -5%). It was ranked by Drewry as the fifth largest
                                                                                     Change to controlling rights model. CP is shifting its focus
terminal operator in the world with 6.1% gross throughput
                                                                                     towards obtaining controlling stakes (or at least a stake that
market share in 2008.
                                                                                     can allow for equity-accounting) in its terminal investments.
                                                                                     The Piraeus terminal that was acquired in 2008 is its first
Driven by its new terminal operations in Piraeus, Greece,
                                                                                     wholly-owned terminal subsidiary. Now, CP owns controlling
revenue from its terminal business jumped to US$120m in
                                                                                     stakes in 6 terminal companies. Also, CP sold its 8.1% stake in
FY09 and contributed to 34% of group revenue. However,
                                                                                     Dalian Port Container Co., Ltd. to Dalian Port in Jan 2010. In
operating profit margin dived to 17% from over 40%
                                                                                     Jun 2010, it increased its equity interest in Yantian Int’l (phase
previously, primarily due to high initial operating expenses for
                                                                                     I & II) and Yantian Int’l Phase III to 13.4% and 15.0%,
the Piraeus terminal, which was loss-making on acquisition.
                                                                                     respectively, which will allow CP to equity account for
Diversifying terminal portfolio. Since 2007, CP has been                             earnings from these investments. After this, only Tianjin Five
expanding into the non-containerised terminal business,                              Continents Terminal would be accounted as AFS financial
leveraging on the growing demand for imported raw                                    assets, with rest either equity accounted for or consolidated.

Fleet Size and Market Share (TEU)                                                  Container Utilisation Rate


                                                                              %     %
 1,800,000                                                                    16    98
 1,600,000                                                                    14    96
 1,400,000                                                                    12    94
 1,200,000
                                                                              10    92
 1,000,000
                                                                              8     90
   800,000
                                                                              6     88
   600,000
                                                                              4     86
   400,000
                                                                              2     84
   200,000
          0                                                                   0     82
                                                                                    80
               2001

                      2002

                             2003

                                    2004

                                           2005

                                                  2006

                                                         2007

                                                                2008

                                                                       2009




                                                                                          2004     2005      2006     2007      2008     2009
              Fleet size (LHS)                     Market share (RHS)                       COSCO Pacific (Florens)           Industry average

Source: Company, DBS Vickers                                                       Source: Company, DBS Vickers




Page 56
                                                                                                                    China Port Sector
                                                                                                                      COSCO Pacific



Container leasing business                                           and total long term leases, respectively. However, leasing rates
                                                                     under long term leases are also negotiated and locked in on a
High utilisation rate supported by COSCON. CP commenced its          yearly basis. Hence, over 90% of its leasing business may not
container leasing business under the name “Florens” in 1987.         enjoy the over 30% YTD rise in market rates.
Backed by its sister company COSCO Container Lines Co., Ltd.
(COSCON), CP expanded its container leasing capacity to              Top 10 Container Leasing Company
become the second largest container leasing company in the
world in terms of fleet size. With secured business from                                           Capacity (TEU)      Market share
COSCON, CP has also consistently maintained a higher than             Textainer Group                   2,305,000              21.1%
industry average utilization rate.                                    Florens*                          1,582,614              14.3%
                                                                      Triton Container                  1,485,000              13.6%
Sales and leaseback busines lowers investment costs. In Jun
                                                                      TAL Int'l                         1,050,000               9.6%
2006, CP launched an asset light model for its container leasing
                                                                      GE SeaCo                            960,000               8.8%
business with sale and manage-back deals. The deals usually
                                                                      CAI Int'l                           770,000               7.1%
involve the sale of its containers and then contracting with the
                                                                      Gold Container                      500,000               4.6%
buyers to manage the containers for a fee. This arrangement
                                                                      UES Int'l HK                        460,000               4.2%
will not only reduce CP’s operational risk, but also gives it more
                                                                      Cronos Group                        440,000               4.0%
financial flexibility to invest in its terminal business.
                                                                      Seacastle Container                 390,000               3.6%
Over 90% long term business. Following the slowdown of              Total                             9,942,614  90.9%
global trade in FY09, revenue from its container leasing business Source: Company taken from World Cargo News, Sep2009, *
fell 9.0% y-o-y to US$230m. It accounted for 65.8% of group       Florens’ fleet size as at 31 Dec 2009
revenue that year compared to 90.4% in FY06, as a result of its
rapidly growing terminal business. Within the container leasing
business, 67.8% and 93.2% of revenue came from COSCON


Container Leasing Revenue Breakdown by Customers and Term Structure

  Leasing containers      Customers                                  Container no. (TEU)       As % of total leasing revenue

  Sales & lease back      COSCON (10 years long term)                                118,094                            14.7%
  Owned                   COSCON (10 years long term)                                409,797                            53.1%
  Owned                   Int'l customers (3-8 years long term)                      274,055                            25.4%
  Owned                   Int'l customers (short term)                                58,536                             6.8%

 Source: Company, DBS Vickers


Other businesses                                                     CIMC’s net earnings plunged 55.6% in FY08 and by 31.8% in
                                                                     FY09, due to slowing demand from shipping liners. However,
Integrated container manufacturing business in 2004. CP holds        we expect the earnigs to pick up, led by pent-up demand and
a 21.8% stake in CIMC. It was established in Shenzhen in 1980        the government’s containerisation inititiatives in railway
and listed on both A and B share markets on the Shenzhen             transportation systems.
Stock Exchange in 1994. CIMC has been the largest container
                                                                     Divesting non-core businesses. In Jan 2004, CP acquired 49%
manufacturer in the world since 1996 with over half share of
                                                                     equity interest in COSCO Logistics Co., Ltd. for a total
the international container business. Besides container
                                                                     consideration of RMB1.18bn from COSCO Group. COSCO
manufacturing, CIMC also expanded into road transportation
                                                                     Logistics is the largest logistics operator in China. However, the
vehicles, energy equipment, and airport equipment.
                                                                     Group has since sold the entire 49% stake in COSCO Logistics
To enhance its vertical integration strategy, CP started to          for RMB2bn to China COSCO on Mar 30, 2010, because it did
purchase CIMC shares in 2004. However, the largest                   not see clear synergies between COSCO Logistics and its core
shareholder of CIMC is still CMHI, which holds 24.8% equity          port business. The sales proceeds will be invested in its core port
interest.                                                            business.




                                                                                                                                 Page 57
China Port Sector
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Growth Prospects                                               exports in Dec 2009 with 16.1% y-o-y growth. Export growth
                                                               has continued to accelerate since except in Feb and Mar 2010,
Riding on sooner-than-expected export recovery. Fuelled by the when it was distorted by the Spring Festival effects. Meanwhile,
large scale stimulus package introduced by China’s government, container port climate index also improved to its highest level in
China’s imports have recovered more quickly than exports. At   two years. IMF forecasts 10.5% GDP growth for China and
the same time, improving economic conditions in major          9.0% global trade growth. With a diversified terminal portfolio
economies strengthened global confidence of an economic        nationwide and overseas, CP should benefit from the pickup of
recovery. Hence, we saw an earlier-than-expected recovery in   China’s exports and global trade.

Import & Export Growth Y-o-y (%)                                                                                                         Port Climate Index: Container Throughput (May 2007=100)


  %                                                                                                                                       160
  80
                                                                                                                                          150
  60                                                                                                                                      140
  40                                                                                                                                      130
  20                                                                                                                                      120
   0                                                                                                                                      110
 -20                                                                                                                                      100
 -40                                                                                                                                       90
                         Jul-09
                                  Aug-09
                                           Sep-09
                                                    Oct-09
                                                             Nov-09
                                                                      Dec-09
                                                                               Jan-10
                                                                                        Feb-10


                                                                                                           Apr-10
                Jun-09




                                                                                                  Mar-10


                                                                                                                    May-10
                                                                                                                             Jun-10
       May-09




                                                                                                                                           80
                                                                                                                                                 Mar-08
                                                                                                                                                          May-08
                                                                                                                                                                    Jul-08
                                                                                                                                                                             Sep-08
                                                                                                                                                                                      Nov-08
                                                                                                                                                                                               Jan-09
                                                                                                                                                                                                        Mar-09
                                                                                                                                                                                                                 May-09
                                                                                                                                                                                                                          Jul-09
                                                                                                                                                                                                                                    Sep-09
                                                                                                                                                                                                                                             Nov-09
                                                                                                                                                                                                                                                      Jan-10
                                                                                                                                                                                                                                                               Mar-10
                                                                                                                                                                                                                                                                        May-10
                                                Export                                           Import

Source: CEIC, DBS Vickers                                                                                                                Source: CEIC, DBS Vickers


 Container Throughput Growth in Major Coastal Ports
                                           Dalian                              Tianjin                        Qingdao                 Shanghai                     Ningbo                         Xiamen                           Shenzhen                    Guangzhou

  Jan 2010                                       9%                                 21%                                 10%               15%                          22%                               23%                                 10%                                 60%
  Feb 2010                                      34%                                  9%                                  8%               27%                          47%                               35%                                 53%                                 22%
  Mar 2010                                      18%                                  8%                                  9%                6%                           9%                               27%                                 23%                                 16%
  Apr 2010                                      21%                                  6%                                 11%               20%                          45%                               34%                                 31%                                 17%
  May 2010                                      14%                                 11%                                 16%               24%                          52%                               28%                                 27%                                 10%
  Jun 2010                                      10%                                 23%                                 15%               22%                          39%                               37%                                 37%                                  1%
  Ytd                                           17%                                 13%                                 11%               19%                          34%                               28%                                 29%                                 17%

 Source: CEIC, DBS Vickers



Focusing on terminal business as key earnings driver. In an                                                                              In addition, CP also transformed its terminal development
effort to focus on its terminal business, CP has sold several non-                                                                       strategy from investment-based to a control-based model with
core investments including 20% stake in Chong Hing Bank in                                                                               the acquisition of majority stakes in new terminal investments.
Aug 2007, 20% stake in Shanghai CIMC Reefer in Jan 2009,                                                                                 In Jan 2010, it completed the transfer of 8.1% equity stake in
and 49% stake in COSCO Logistics in Mar 2010. CP also                                                                                    Dalian Port Company Co., Ltd. to Dalian Port for a US$7m
launched an asset light model for its container leasing business                                                                         pretax disposal gain. In Jun 2010, it raised its stake in highly
with the sale and manage-back deals in Jun 2006. These have                                                                              efficient Yantian Int’l for US$520m (implied 11.4x FY09 PE). This
provided more cash for investing in the terminal business.                                                                               is expected to improve the quality and profitability of CP’s
                                                                                                                                         terminal business, as well as its market share in Shenzhen.




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                                                                                                                          China Port Sector
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Its investments in bulk terminals also diversify its terminal        will also benefit from the support of another sister company -
portfolio and gives it exposure to the accelerated demands for       COSCO Bulk Carrier Co.
raw materials in the PRC. We believe its bulk terminal business


 New Capacity Added in 2010

  Terminals                          No. of berths      Annual capacity (TEU)           Attributable capacity (TEU)                      Schedule

  Qingdao Qianwan United                          9                  5,250,000                                  420,000                  Operated
  Tianjin Euroasia                                3                  1,800,000                                  540,000                  Operated
  Ningbo Yuan Dong                                1                   600,000                                   120,000                  Operated
  Yantian Phase III*                              1                   900,000                                   117,000                        2H10
  Suez Canal Terminal                             3                  1,900,000                                  380,000                        2H10
  Total                                                             10,450,000                             1,577,000

 Source: Company, * does not consider equity increase



More capacity in the pipeline. In FY09, CP expanded its
                                                                       Container Volume manufactured by CIMC (‘000 TEU)
annual capacity by 3.7m TEUs (2.2m attributable capacity). In
2010, it plans to expand aggregate capacity by another 10.5m
                                                                        '000 TEUs
TEUs (1.6m attributable capacity). This will further enhance its
network.                                                                2,500


Continues to build up global network. With a solid footprint            2,000
in the domestic market, CP started to invest in terminals
overseas in 2003 with the establishment of COSCO-PSA, the               1,500
first JV in the port of Singapore. Then it acquired 20% equity
stake in Antwerp Gateway, followed by 20% interest in Suez              1,000
Canal Container Terminal in 2007. In Oct 2009, it commenced
operations at piers 2 and 3 at the port of Piraeus in Greece, its         500
first wholly-owned terminal project. Its global expansion move
will enhance its competitive edge by allowing it to provide                 0
                                                                                 2004


                                                                                           2005

                                                                                                  2006

                                                                                                         2007

                                                                                                                   2008

                                                                                                                          2009


                                                                                                                                 2010F


similar service packages worldwide. In addition, CP may                                                                                    2011F
achieve economies of scale through centralised procurement
and management.
                                                                       Source: Company, DBS Vickers
Other container businesses more leveraged to ride on the
recovery. CP’s container leasing business has a high operating
leverage, as segmental D&A usually makes up nearly 60% of
total costs (54.4% in FY09). As such, the segmental earnings
should be more leveraged to ride on the recovery. In addition,
CIMC reported 80.9% y-o-y decline in container revenue in
FY09, when container sales volume retreated 91.4% y-o-y. As
the economy picks up, we expect CIMC’s container
manufacture business to bottom out in FY10 driven by pent-
up demand. We should see much improved sales volume and
margins for CIMC’s container manufacturing business this
year, which will help boost CP’s earning.




                                                                                                                                             Page 59
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                                                                 owned by the Greek government is expected to add 1.1m TEU
Key Risks                                                        capacity in 2H10. This could add to the uncertainty about
                                                                 Piraeus’ contribution to CP.
Container leasing business is subject to volatility. Although
CP’s fleet size and market share have expanded over time,        CP might also face a cultural conflict. In Oct 2009, the
revenue from container leasing business fluctuated during the    workers’ union of Piraeus port went on an almost two-week
FY04-FY09 due to the cyclical global trade environment. Due      long strike to pressure the government to cancel CP’s
to the high operating leverage, segmental earnings are more      takeover of Piraeus port Piers 2 & 3. There were also strikes in
volatile than revenues.                                          April and May this year. To address this matter, CP transferred
                                                                 the current local workers to Piraeus Port Authority in Jun 2010,
Container Leasing Business Revenue Growth                        and replace them with its own workers and by outsourcing
                                                                 labour. Management estimates the transfers should save
                                                                 EUR3m per month thereafter.
 US$m
 290                                                  10%
 280                                                  8%         May be hurt by RMB appreciation. On Jun 18, 2010, the
                                                      6%         central bank – People’s Bank of China announced to further
 270
                                                      4%         reform RMB exchange rate regime with reference to a basket
 260
                                                      2%         of currencies. Our economics team expects RMB to appreciate
 250                                                             slightly from RMB6.83/US$ to RMB6.69/US$ by end-2010,
                                                      0%
 240
                                                      -2%        and to RMB6.50/US$ by end-2011. An anticipated RMB
 230                                                  -4%        appreciation could depress China’s exports, which could be
 220                                                  -6%
                                                                 damaging especially for the southern ports that rely more on
 210                                                  -8%
                                                                 exports. In addition, CP owns and operates several foreign
 200                                                  -10%
                                                                 terminal investments which returns may be diluted by a
          2004    2005   2006    2007   2008   2009              stronger RMB. On the other hand, CP may also benefit
                                                                 because it has USD-loans amounting to US$1.2bn (76.5% of
                 Revenue (LHS)           Growth (RHS)
                                                                 total debt) at end-09. It also purchases container boxes in USD.
                                                                 This would be mitigated by higher imports.
Source: Company, DBS Vickers
                                                                 And weaker Euro. Sovereign debt problems in Greece and
Piraeus terminal could take time to turnaround, though losses    fears of an EU zone contagion effect have depressed the Euro.
should narrow in FY10. The Piraeus terminal (pier 2 &3) in       The currency has depreciated by 13% against the RMB year to
Greece is expected to require a large amount of investment       date. 20% of China’s exports (in value) go to the EU zone,
(US$1,368m). In 4Q09, Piraeus Port registered US$12.3m loss,     which is why the gloomy EU economy and tumbling euro are
which dragged down CP’s group earnings significantly. And        affecting Chinese exporters. In addition, CP may also be
we are not optimistic about contribution from Piraeus in 2010    affected because it has two terminal projects in the EU zone.
because of the Greek debt crisis, which likely will impact on
imports. In addition, the upgraded Piraeus Port Pier 1 that is




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                                                                                                                                        China Port Sector
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China Export Breakdown by Region (2009)                                         China Import Breakdown by Region (2009)


                                                   Africa                                                                                    Africa
                                                                Europe
                                                    4%                                                                                        4%
                                                               (Non-EU)                                                                                Europe
                                                                  2%                                                                                  (Non-EU)
                                                                                      Asia
       Asia                                                                                                                                              3%
                                                                                      61%
       47%
                                                                     Latin                                                                             Latin
                                                                    America                                                                           America
                                                                      5%                                                                                6%


                                                                     North                                                                           North
                                                                    America                                                                         America
                                                                     20%                                                EU                            9%
                                       EU                                                                              13%
                                      20%                                                                                                    Oceania
                                                         Oceania
                                                                                                                                               4%
                                                           2%

Source: CEIC, DBS Vickers                                                       Source: CEIC, DBS Vickers




China Export to EU Monthly                                                      China Import from EU Monthly


 US$bn                                                                           US$bn
 30                                                                              17
 28
 26                                                                              15
 24                                                                              13
 22
 20                                                                              11
 18
 16                                                                               9
 14
                                                                                  7
 12
 10                                                                               5
                    Mar

                          Apr




                                                              Oct
                                            Jul




                                                                          Dec
       Jan

              Feb




                                      Jun



                                                  Aug

                                                        Sep



                                                                    Nov
                                May




                                                                                                   Mar

                                                                                                         Apr




                                                                                                                                              Oct
                                                                                                                           Jul




                                                                                                                                                          Dec
                                                                                       Jan

                                                                                             Feb




                                                                                                                     Jun



                                                                                                                                 Aug
                                                                                                                                       Sep
                                                                                                               May




                                                                                                                                                    Nov




                2007              2008              2009             2010                      2007              2008              2009                2010

Source: CEIC, DBS Vickers                                                       Source: CEIC, DBS Vickers




                                                                                                                                                                Page 61
China Port Sector
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Segmental Analysis

                                                                        nearly 4-fold to over 800,000 TEU in FY10F, as Piraeus
Terminal revenue surge, driven by Piraeus port. We expect
                                                                        commenced operation in 4Q09. For 5M10, throughput at
CP’s terminal revenue to soar 56.6% in FY10, to US$205m,
                                                                        Piraeus was 332,000 TEU.
driven by recovering container throughput and an increase in
container tariff. We expect CP’s container throughput to
                                                                        We also expect domestic container tariffs to pick up as the
resume double-digit growth, premised on a stronger-than-
                                                                        number of empty containers decline and foreign trade recover.
expected pick-up in global demand. Among CP’s terminal
                                                                        CP’s blended container tariff will be lifted further by higher
subsidiaries, we estimate throughput at Piraeus port will grow
                                                                        tariffs at Piraeus port.

Container Throughput and Growth

                                             Throughput (mn TEU)                                 Y-o-y Growth (%)
Terminal
                                      08A         09A        10F              11F       08A         09A         10F        11F
Bohai Rim Region
Gross                                 17.1        17.5       16.1             17.1       6%         2%         -8%         6%
Attributable                           3.6         3.7        3.9              4.1       6%         3%          5%         7%

Yangtze River Delta
Gross                                  9.5         8.4           9.2           9.8      14%        -12%        10%         7%
Attributable                           2.1         1.9           2.1           2.3      14%        -10%        12%         7%

PRD and South-Eastern Coast
Gross                                 14.5        13.3       15.3             16.9      15%         -8%        15%        10%
Attributable                           3.1         3.0        4.8              5.5      30%         -4%        62%        14%

Overseas
Gross                                  4.7         4.4           5.4           5.7     143%         -8%        23%         5%
Attributable                           1.3         1.3           2.0           2.1     107%         -3%        61%         5%

Total
Gross                                 45.9        43.5       46.0             49.5      18%         -5%         6%         8%
Attributable                          10.2         9.9       12.9             14.0      22%         -3%        31%         9%

Source: Company, DBS Vickers


Key Assumptions for Consolidated Terminal Operations

FY Dec (US$ m)                                                     2008A                2009A               2010F                2011F

Throughput
Container (mn TEU)                                                      2.1                2.3                 3.3                 3.8
Bulk (mn mt)                                                           13.7               17.0                18.0                19.0
Throughput growth (%)
Container                                                              22%                11%                43%                  16%
Bulk                                                                    NA                24%                 6%                   6%

Blended handling charge
Container (US$/TEU)                                                    29.4               33.7                46.5                46.1
Bulk (US$/mt)                                                           1.3                1.8                 1.8                 1.9
Blended handling charge growth (%)
Container                                                               NA                15%                38%                  -1%
Bulk                                                                    NA                38%                 3%                   2%

Source: Company, DBS Vickers




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                                                                                                             China Port Sector
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                                                                   operations revenue, overall operating margin for this segment
In FY09, operating profit margins for its terminal operations
                                                                   is expected to retreat further to 12.9% in FY10F. Operating
tumbled to 17.0% from over 23.6% in FY08. This was due to
                                                                   profit though, is projected to rise from US$20m to US$27m,
a drop in container throughput and tariffs, as well as initial
                                                                   in FY10F. Further more, premised on improving operations
losses at Piraeus port. Piraeus port registered a US$4.8m one-
                                                                   and substantial staff cost saving at Piraeus port, we expect
time start-up loss and US$6.2m operating losses in 4Q09. We
                                                                   terminal handling operating margin to recover to 19.6% in
expect operating losses at Piraeus port to narrow as
                                                                   FY11F and operating profit to grow to US$45m in FY11F.
throughput increases and it completes the transfer of workers.
But since Piraeus accounts for almost half of CP’s terminal


Key Assumptions for Container Leasing operations

FY Dec                                                           2008A              2009A                2010F               2011F

Container leasing revenue (US$ m)                                  202                198                  218                 234
Management income (US$ m)                                            8                  6                    7                   8

Fleet capacity (mn TEU)                                           1.62                1.58                1.69                 1.76
Capacity growth (%)                                                7%                 -2%                  6%                   5%

Actual container leased (mn TEU)
Owned container                                                   0.82                0.78                0.84                 0.89
Managed container                                                 0.72                0.65                0.71                 0.75

Utilization rate (%)                                                95                  91                  92                   93

Lease rate (US$/TEU)                                               247                254                  259                 264
Management fee (US$/TEU)                                            12                 10                   10                  10

Source: Company, DBS Vickers

                                                                   increase. Coupled with improved utilisation, we project
Container leasing: growing capacity with improved utilisation.
                                                                   revenue from leasing business will grow 9% y-o-y in FY10F.
Container leasing revenue fell 9.0% y-o-y in FY09 following
                                                                   The improved utilisation rate and hike in spot leasing rates are
reduced fleet capacity and utilisation rate. But CP plans to
                                                                   expected to lift segment operating margin to 45.0% in FY10F.
resume container purchases after the suspension in FY09.
Utilisation rate had picked up to 93.5% in 1Q10 and 97.0%
                                                                   Total revenue is projected to grow at a CAGR of 21% for the
in 2Q10 along the recovering demand. CP will add 11,000
                                                                   next two years. Together with improved operating margin,
container boxes in FY10, implying a 7% y-o-y capacity
                                                                   total operating profit is forecasted to grow at a CAGR of 31%.

Segmental Analysis

FY Dec                                                  2006A       2007A         2008A         2009A            2010F       2011F

Revenues (US$ m)
 Container terminal                                        28             51          85           120            211          238
 Container lease, management, and sale                    269            248         253           230            255          270
Total                                                     297            299         338           349            466          508

Operating profits (US$ m)
 Container terminal                                        12             22          20            20             29           47
 Container lease, management, and sale                    147            127         128            83            102          122
Total                                                     152            135         166           100            132          171

Operating profits margins (%)
 Container terminal                                       43.0           42.6       23.6          17.0            13.8         19.9
 Container lease, management, and sale                    54.7           51.1       50.7          35.9            40.0         45.0
Total                                                     51.1           45.2       49.1          28.6            28.4         33.6

Source: Company, DBS Vickers




                                                                                                                            Page 63
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Interim/Quarterly Performance
                                                                Operating profit grew 49.8% y-o-y in 1Q10, while margins
                                                                improved to 28.8% from 27.7% in 1Q09. Excluding US$84.7m
Strong earnings growth in 1Q10. Operating profit margins for
                                                                disposal gain in 1Q10, CP’s core earnings still surged 61.1% y-
its terminal business tumbled in 2H09 due to initial losses at
                                                                o-y.
Piraeus in 4Q09. However, we saw strong revenue and earnings
growth in 1Q10.                                                 Supported by the pent-up demand for container boxes, CIMC
                                                                recorded a 82.6% y-o-y growth for total revenue in 1Q10. Net
Total container and bulk throughput rose 19.1% and 117.8%,
                                                                profit decreased 15.4% y-o-y, due to a large disposal gain of
respectively, in 1Q10. Container throughput in the Bohai Rim
                                                                AFS investment in 1Q09. Excluding disposal gain, CIMC’s core
Region, Yangtze River Delta Region, Southern China Region and
                                                                earing reversed from a negative RMB235m in 1Q09 to
overseas grew 13.2%, 5.3%, 26.4% and 49.7% y-o-y,
                                                                RMB342m in 1Q10.
respectively. Container fleet capacity edged down 3.1% y-o-y in
1Q10, but utilisation rate improved to 93.5%, 3.2ppt higher
than that in 1Q09.

Interim Income Statement (US$ m)

FY Dec                                1H2008        2H2008       1H2009        2H2009                        1Q09          1Q10


Turnover                                162.1         175.9        159.0          190.4                       75.4        108.4
Cost of Goods Sold                      (77.7)        (87.8)       (86.0)       (114.2)                      -40.9        -78.5
Gross Profit                              84.4          88.1         73.0           76.2                      34.6         29.9
Other Oper. (Exp)/Inc                       3.2         (9.7)      (15.5)         (33.9)                     -13.7          1.4
Operating Profit                          87.5          78.4         57.6           42.4                      20.9         31.3
Other Non Opg (Exp)/Inc                    0.0           0.0          0.0            0.0                       0.0          0.0
Associates & JV Inc                       97.5          32.5         70.5           21.5                      23.9         25.6
Net Interest (Exp)/Inc                  (22.5)        (23.4)       (19.9)         (13.9)                     -11.0         -8.4
Exceptional Gain/(Loss)                    0.0            0.0          5.5            0.0                     13.3         84.7
Pre-tax Profit                          162.6           87.6       113.7            50.0                      47.1        133.3
Tax                                       (6.0)         10.6         (7.6)          (5.7)                     -3.4          0.8
Minority Interest                        (3.5)          (1.6)        (1.6)          (1.9)                     -0.3         -0.8
Net Profit                              153.2          96.6        104.5            42.4                      43.4        133.2
Net profit bef Except.                  153.2           96.6         99.0           42.4                      30.1         48.5
EBITDA                                  230.8         157.8        176.2          113.7                       N/A.         N/A.

Sales Gth (%)                               10            16           (2)            8                       N/A.            44
EBITDA Gth (%)                              11          (43)         (24)          (28)                       N/A.          N/A.
Opg Profit Gth                              16          (43)         (34)          (46)                       N/A.            50
Net Profit Gth (%)                         3.1        (65.4)       (31.8)        (56.1)                       N/A.           207
Gross Margins (%)                         52.1         50.1         45.9          40.0                        45.8          27.6
Opg Profit Margins (%)                    54.0         44.6         36.2          22.3                        27.7          28.8
Net Profit Margins (%)                    94.5         54.9          65.7          22.3                       39.9          44.8

Source: Company, DBS Vickers




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                                                                                                                                                                             China Port Sector
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Financials – Income Statement

                                                                                                                   FY10F and FY11F, primarily driven by Piraeus. We also
FY09 earnings dragged down by Piraeus port. Group
                                                                                                                   expect earnings to recover, led by increased capacity and
revenue has been climbing gradually from 2006 to 2009.
                                                                                                                   improved utilisation at its container business. The disposal of
However, net earnings tumbled in FY09 mainly due to the
                                                                                                                   COSCO Logistic and DPC will add US$92m to net profit in
weak global economy and initial operating losses at Piraeus.
                                                                                                                   FY10F. Core earnings is expected to grow at 49% CAGR in
49% core earnings CAGR for FY10F and FY11F. Looking                                                                the next two years.
ahead, we expect group revenue to grow at 20% CAGR in



Sales Trend                                                       Operating Cost Trend                                               Profitability Trend


US$ m
    600                                                   40.0%     400                                                               450
                                                                                                                                      400                                                    80%
                                                          35.0%     350
    500
                                                          30.0%     300                                                               350                                                    60%
    400                                                                                                                               300
                                                          25.0%     250                                                                                                                      40%
                                                                                                                                      250
    300                                                   20.0%     200
                                                                                                                                      200                                                    20%
                                                          15.0%     150
    200                                                                                                                               150                                                    00%
                                                          10.0%     100                                                               100
    100                                                                                                                                                                                      (20%)
                                                          5.0%       50                                                                50
        0                                                 0.0%       0                                                                  0                                                    (40%)
            2007A     2008A   2009A    2010F    2011F                     2007A   2008A     2009A         2010F    2011F                    2007A   2008A       2009A      2010F     2011F
                                                                                    Other Operating Expenses (-)                                    Net Profit (After-extraordinaries)
            Total Revenue      Revenue Growth (%) (YoY)                             Cost of Goods Sold (-)
                                                                                                                                                    Net Profit Growth (%) (YoY)




FY Dec                                                            2006A                       2007A                        2008A             2009A                           2010F                    2011F

Turnover                                                             297                            299                       338                349                             466                    508
Cost of Goods Sold                                                 (134)                          (153)                     (165)              (200)                           (260)                   (258)
Gross Profit                                                        164                            146                       173                149                             205                     250
Other Opg (Exp)/Inc                                                    37                           (49)                       (7)               (49)                           (73)                    (79)
Operating Profit                                                    201                            212                       166                100                             132                     171
Other Non Opg (Exp)/Inc                                                 0                              0                        0                   0                              0                       0
Associates & JV Inc                                                  174                            187                       130                  92                            204                     249
Net Interest (Exp)/Inc                                              (32)                           (39)                      (46)               (34)                            (61)                    (77)
Exceptional Gain/(Loss)                                                 0                             91                       25                  31                             92                        0
Pre-tax Profit                                                      344                            451                       275                189                             368                     342
Tax                                                                  (49)                          (18)                          5              (13)                            (26)                    (24)
Minority Interest                                                     (3)                            (5)                       (5)                (4)                             (7)                     (6)
Preference Dividend                                                     0                              0                        0                   0                              0                       0
Net Profit                                                          291                            428                       275                173                             335                     312
Net profit before Except.                                            291                            337                       250               141                             243                     312
EBITDA                                                               463                           484                       389                 290                            443                     532

Sales Gth (%)                                                        N/A                            0.5                      13.1                3.4                            33.3                    9.1
EBITDA Gth (%)                                                       N/A                            4.4                    (19.6)             (25.4)                            52.7                   20.1
Operating Profit Gth (%)                                             N/A                            5.5                    (21.8)             (39.8)                            32.6                   29.0
Net Profit Gth (%)                                                   N/A                           47.0                    (35.8)             (37.2)                            94.2                   (6.9)
Effective Tax Rate (%)                                              14.3                            3.9                       N/A                7.0                             7.0                    7.0

Source: Company, DBS Vickers




                                                                                                                                                                                                     Page 65
China Port Sector
COSCO Pacific




Financials – Balance Sheet                                                      quick ratio will dropped to 1.4x and 1.3x, respectively, in FY10F.
                                                                                However, the ratios are still above 1.0 level, which is also
Share placement in May 2010 to fund additional stake in                         healthy. In addition, net debt to equity ratio remains at a
Yantian Int’l. CP completed a share placement, raising                          healthy 0.4x level over FY09-FY11F.
US$585m in net proceeds in May 2010, for the acquisition of
additional stake in Yantian Int’l. CP has also budgeted
US$750m capex in FY10F. After all these, CP’s current ratio and

Breakdown of Assets                              Breakdown of Capital                                    Financial Leverage & Net Debt to Equity


                                                                                                                                                                      1.8
                                                                                                         1,680
           Inventory -                                                                                                                                                1.6
                         Debtors -                                 ST Debt -
              0.4%                                                                                       1,480                                                        1.4
                          7.1%                                       1.7%
    Bank, Cash                                                                                           1,280                                                        1.2
    and Liquid                                                                       LT Debt -
     Assets -                                                                                                                                                         1.0
                                                                                      34.1%              1,080
      15.7%                                                                                                                                                           0.8
                                                     Common                                               880
                                                    Shareholder                                                                                                       0.6
                                     Net Fixed       s' Equity -                                          680                                                         0.4
                                      Assets -         64.2%
                                                                                                          480                                                         0.2
                                      76.8%
                                                                                                                 2007A      2008A      2009A     2010F      2011F
                                                                                                           Net Debt/(Cash)                  Net Debt to Equity (X) (R.H.S)
                                                                                                           Financial Leverage (X) (R.H.S)



FY Dec                                              2006A                2007A                   2008A              2009A                           2010F                     2011F

Net Fixed Assets                                     1,143                1,518                  1,688                1,982                       2,627.4                      3,016
Invts in Assocs & JVs                                1,096                1,233                  1,498                1,354                         2,025                      2,100
Other LT Assets                                        385                  517                    357                  421                           420                        419
Cash & ST Invts                                        225                  400                    431                  426                           313                        205
Inventory                                                4                   10                      5                   10                            15                         14
Debtors                                                134                  193                    232                  182                           243                        265
Other Current Assets                                     1                    0                      1                  260                             1                          1
Total Assets                                         2,987                3,872                  4,213                4,635                         5,645                      6,021

ST Debt                                                 13                   40                     67                  194                            206                       230
Other Current Liab                                     236                  169                    127                  152                            229                       216
LT Debt                                                519                  874                  1,357                1,411                          1,499                     1,674
Other LT Liabilities                                    12                   14                     16                   20                             20                        20
Shareholder’s Equity                                 2,173                2,712                  2,552                2,742                          3,568                     3,751
Minority Interests                                      36                   62                     94                  116                            123                       129
Total Cap. & Liab.                                   2,987                3,872                  4,213                4,635                          5,645                     6,021

 Leverage Analysis (x)
 Net Interest Cover                                   6.4                   5.4                    3.6               3.0                             2.2                         2.2
 EBITDA Gross Interest Cover                         10.5                   9.7                    7.4               7.3                             6.7                         6.5
 Total Debt to EBITDA                                 1.1                   1.9                    3.7               5.5                             3.9                         3.6
 Total Debt to Total Assets                            0.2                  0.2                    0.3               0.3                             0.3                         0.3
 Total Debt to Capital                                 0.2                  0.3                    0.5               0.6                             0.5                         0.5
 Net Debt to Equity                                   0.1                   0.2                    0.4               0.4                             0.4                         0.4
 Capex to Debt                                       (0.8)                  0.5                    0.2               0.2                             0.4                         0.3
 Net Cash / (Debt)                                  (307)                 (514)                  (993)           (1,178)                         (1,391)                     (1,699)

 Liquidity Analysis (x)
 Cash Ratio                                            0.9                     1.9                2.2                    1.2                             0.7                    0.5
 Current Ratio                                         1.5                     2.9                3.4                    2.5                             1.3                    1.1
 Quick Ratio                                           1.4                     2.8                3.4                    1.8                             1.3                    1.1

Source: Company, DBS Vickers




Page 66
                                                                                                                                                                                China Port Sector
                                                                                                                                                                                  COSCO Pacific




Financials – Cash Flow                                          Pacific, and US$40m for Yangzhou Yuanyang. And as global
                                                                demand recovers, CP is also resuming the purchase of container
Improving operating cash flow. Led by strong revenue growth     boxes - it is expected to spend US$300m to buy 11,000
and improving margins, we project CP’s operating cash flow will container boxes to increase its fleet.
increase in FY10F and FY11F. Since most of CP’s terminal assets
are held through associates, JCEs or AFS investments, its       Stable 40% payout ratio. We expect CP to continue to payout
operating cash flow will be lower than net earnings.            40% of earnings for the next two years, which means
                                                                US$259m cash dividends to investors during the next two years.
Large capex in FY10F. Aside from US$520m for the acquisition    It might also pay a special dividend out of gains from the
of Yantian Int’l, CP has also budgeted US$450m capex for the    COSCO Logistics disposal this year. The after-tax disposal gain is
terminal projects in FY10F, including US$240m for Xiamen        US$85m.
Oceangate, US$80m for Piraeus port, US$50m for Quanzhou

Cash Flow Trend                                                     Free Cash Flow Per Share                                                  Free Cash Flow As At Year End


                                                                     0.12
                                                                                                                                               (12)
  663                                                                0.07
                                                                                                                                                        2007A   2008A   2009A    2010F   2011F
  463
                                                                     0.02                                                                     (112)
  263
                                                                    (0.03)
   63                                                                                                                                         (212)
 -137                                                               (0.08)
 -337                                                                                                                                         (312)
                                                                    (0.13)
 -537
                                                                    (0.18)                                                                    (412)
 -737
 -937                                                               (0.23)                                                                    (512)
        2007A    2008A     2009A      2010F       2011F                      2007A       2008A          2009A      2010F        2011F

        CF from Op   CF from Invt   CF from Fin                              Free Cash Flow Per Share    Free Operating Cash Flow Per Share
                                                                                                                                              (612)




FY Dec                                                    2006A                          2007A                                   2008A        2009A                        2010F                  2011F

Pre-Tax Profit                                               344                              451                                     275             189                    368                    342
Dep. & Amort.                                                 88                               84                                      93               98                   106                    112
Tax Paid                                                   (113)                               (5)                                     (2)              (7)                   (26)                  (24)
Assoc. & JV Inc/(loss)                                     (174)                            (187)                                   (130)             (92)                  (204)                  (249)
Chg in Wkg.Cap.                                               73                               32                                      35             (13)                     11                   (34)
Other Operating CF                                            83                              (18)                                     29               31                      65                    79
Net Operating CF                                            210                              231                                     266              175                    227                    227

Capital Exp.(net)                                            416                            (442)                                   (277)       (371)                       (750)                  (500)
Other Invts.(net)                                              1                               26                                     (51)        103                          29                      2
Invts in Assoc. & JV                                       (100)                               79                                   (322)           21                      (262)                      7
Div from Assoc & JV                                           85                              131                                     159           91                        138                    167
Other Investing CF                                             1                                1                                       1         (66)                          0                      0
Net Investing CF                                            403                             (205)                                   (489)       (222)                       (845)                  (324)

Div Paid                                                   (184)                            (164)                                   (218)          (54)                      (94)                  (129)
Chg in Gross Debt                                          (373)                              325                                     446          185                       100                    200
Capital Issues                                                 49                               26                                       0            0                      585                       0
Other Financing CF                                           (39)                             (52)                                    (40)         (30)                      (66)                   (81)
Net Financing CF                                           (546)                              136                                     187          101                       525                    (11)
Net Cashflow                                                   67                             162                                     (35)           54                      (93)                  (107)
Opg CFPS (US cts.)                                            6.2                              8.9                                   10.3           8.3                       8.4                    9.6
Free CFPS (US cts.)                                         28.3                             (9.4)                                   (0.5)        (8.7)                    (20.4)                 (10.1)

Source: Company, DBS Vickers




                                                                                                                                                                                                 Page 67
China Port Sector
COSCO Pacific




Financials – ROE Drivers
                                                                                                      Improving ROE. We expect total asset turnover to inch up in
                                                                                                      FY10F and FY11F, due to increasing revenue and equity scale.
Expect net margins to pick-up. The low net profit margin in
                                                                                                      Its financial leverage could decrease slightly after the share
FY09 was mainly due to the weak economy and start-up losses
                                                                                                      placement. As such, ROAE is forecast to climb from 6.5% in
at Piraeus Port. We expect net margins to improve to 58.9% in
                                                                                                      FY09 to 8.5% in FY11F.
FY11F, premised on improved utilisation of its multiple
container businesses. However, FY10F may be distorted by
disposal gains.

ROAE / ROAA Trend (%)                                         Margin Trend (%)                                                    Total Debt & Gross Interest Cover


19.0%
                                                                                                                                                                                                        3.4x
                                                               140%                                                               2000
17.0%
                                                                                                                                                                                                        3.2x
15.0%                                                          120%
                                                                                                                                                                                                        3.0x
                                                                                                                                  1500
13.0%                                                          100%                                                                                                                                     2.8x

11.0%                                                                                                                                                                                                   2.6x
                                                               80%                                                                1000
 9.0%                                                                                                                                                                                                   2.4x
                                                               60%                                                                                                                                      2.2x
 7.0%
                                                                                                                                  500                                                                   2.0x
 5.0%                                                          40%
                                                                                                                                                                                                        1.8x
 3.0%                                                          20%                                                                  0                                                                   1.6x
        2007A      2008A       2009A    2010F      2011F              2007A       2008A    2009A     2010F     2011F                     2007A   2008A         2009A          2010F           2011F
  Ret on Avg Equity (ROAE) %     Ret on Avg Assets (ROAA) %     EBITDA Margin %     EBIT Margin %   Net Income Margin %                             Total Debt (+)     Gross Interest Cover (X) (YoY)




FY Dec                                                        2006A                       2007A                        2008A             2009A                                  2010F                          2011F

Profitability Ratios
Sales Growth (%)                                                N/A                         0.5                            13.1               3.4                                    33.3                        9.1
Gross Margin (%)                                               55.1                        49.0                            51.0              42.7                                    44.1                       49.2
Operating Margin (%)                                           67.6                        71.0                            49.1              28.6                                    28.4                       33.6
Net Profit Margin (%)                                          97.9                       143.1                            81.3              49.4                                    71.9                       61.4
ROAE (%)                                                        N/A                        17.5                            10.4               6.5                                    10.6                        8.5
ROA (%)                                                         N/A                        12.5                             6.8               3.9                                     6.5                        5.3
ROCE (%)                                                        N/A                         6.3                             4.3               2.2                                     2.5                        2.8

Activity Ratios
Debtors Turn (average days)                                     N/A                       199.7                           229.9            216.5                                 166.7                         182.5
Creditors Turn (average days)                                   N/A                       869.9                           694.2            484.3                                 440.1                         546.4
Inventory Turn (average days)                                   N/A                        36.4                            38.8             27.1                                  29.2                          36.3
Total Asset Turnover (x)                                        N/A                         0.1                             0.1              0.1                                   0.1                           0.1
Fixed Asset Turnover (x)                                        N/A                         0.2                             0.2              0.2                                   0.2                           0.2

Source: Company, DBS Vickers




Page 68
                                                                                                                 China Port Sector
                                                                                                                    COSCO Pacific




Valuation                                                             businesses have rebound substantially. In addition, earnings are
                                                                      expected to accelerate as a result of relatively high operating
More leveraged on the recovery. CP has a large portion of             leverage this year.
container leasing business which performance swings wider
than its terminal performance. As such, CP’s performance              Initiate coverage with BUY rating and HK$11.83 TP. Because of
lagged behind HKEx-listed port operators last year amid the           its basket of container-related businesses, CP is highly
unstable economy. CP’s leasing business has a higher                  leveraged to a recovery in global trade. We initiate CP with a
operating leverage than its terminal business, as depreciation        BUY rating and HK$11.83 target price based on SOTP
of container boxes usually accounted for over 30% of total            valuation method. This implies 16.9x FY10 core earning and
leasing revenue. But with the global economy and international        1.2x FY10 P/BV, and over 20% upside potential from the
trade recovering, its container leasing and manufacturing             current share price.



SOTP Valuation

                                Value     Value/share      Implied
                              (US$ m)     (HK$/share)      FY10 PE                                                         Comments

 Container terminal              2,935            8.42         18.7                                          See details on next page
                                                                                              DCF, WACC 8.8%, terminal growth 1%
 Container lease                 1,054            3.02         12.0                                  US peers trades at 12.5x FY10 PE
                                                                                                       15x Bloomberg consensus EPS,
 Container manufacture             942            2.70         15.0                                Implied RMB11.00/share for CIMC
                                                                        FY09 book value plus sale of disposal, plus net proceeds from
 Net cash                         -809           -2.32                    new shares issued, minus acquisition costs for Yantian Int'l.
 Total                           4,123           11.83

 No of shares                    2,712                                                                     Placement shares included
 Exchange rate                    7.78

Source: Bloomberg exchange rate closing at Jul 14,2010, DBS Vickers




                                                                                                                                 Page 69
China Port Sector
COSCO Pacific




Valuation of Other Ports & Related Investments

                                                                                Earnings
                                                               Valuation                                      Implied PE
                                               Stake                         contribution   CP's FV (US$ m)
                                                                method                                          multiple
                                                                                 (US$ m)
 Bohai Rim                                                                          32.0               552          17.2
 Qingdao Qianwan                                20%                   DDM            25.2              362          14.3
 Qingdao Cosport Int'l                          50%                   DDM             1.4               16          11.8
 Dalian Port Container Terminal                 20%                   DDM             1.4               31          23.0
 Dalian Automobile Terminal                     30%                   cost            0.0               30          n/m
 Tianjin Five Continents Int'l                  14%                   DDM             1.5               26          11.2
 Tianjin Port Euroasia Int'l                    30%                   DDM            -0.5               43          n/m
 Yingkou Container                              50%                   DDM             3.1               43          14.3


 Yangtze River Delta                                                                35.1               539          15.3
 Shanghai Pudong Int'l                          30%                   DDM            21.6              313          14.5
 Shanghai Container Terminals                   10%                   DDM             3.5               62          17.7
 Ningbo Yuan Dong Terminals                     20%                   DDM             4.3               68          15.8
 Zhangjiagang Win Hanverky                      51%                   DCF             1.7               27          15.7
 Yangzhou Yuanyang Int'l                        56%                   DCF             2.3               36          15.4
 Nanjing Port Longtan                           20%                   DDM             1.7               33          19.5


 Pearl River Delta                                                                  83.0             1,350          16.3
 COSCO-HIT                                      50%                   DDM           20.3               259          12.7
 Yantian Int'l                                   7%                   DDM           61.7               946          15.3
 Guangzhou South China Oceangate                39%                   DDM             1.0              146        116.0


 Southeast Coast                                                                      8.3              178          21.5
 Quan Zhou Pacific Container                    71%                   DCF             7.0              107          15.4
 Jinjiang Pacific Ports Dev                     80%                   DCF             1.3               30          22.7
 Xiamen Ocean Gate                              70%                   cost            0.0               41          n/m


 Overseas                                                                            -1.9              315          n/m
 COSCO-PSA                                      49%                   DDM             1.9               57          30.5
 Antwerp Gateway                                20%                   DDM            -2.5               -10         n/m
 Suez Canal Container                           20%                   DDM            -0.4               75          n/m
 Piraeus Container                             100%                   DCF            -0.8              193          n/m


 Total                                                                             156.6             2,935          18.7

Source: Bloomberg exchange rate closing at Jul 14,2010, DBS Vickers




Page 70
                                                                                                                                                                                                         China Port Sector
                                                                                                                                                                                                            COSCO Pacific



                                                                                                                    Recently, the gap widened again when the A-share market
Cheaper valuation than CMHI. CP’s valuation has been below
                                                                                                                    plunged, but mainly because of concerns about Piraeus port.
CMHI’s since mid-2005, mainly since CMHI acquired a 30%
                                                                                                                    However, we think the uncertainty has been priced in. In
stake in SIPG, the largest port operator listed in the A-share
                                                                                                                    addition, replacing local workers with CP’s own employees
market. CP’s valuation was also depressed by the listing of its
                                                                                                                    and outsourcing labour will not only reduce the probability of
parent in Jun 2005, as investors preferred its parent because
                                                                                                                    further strikes (which halt operations), but would also save
of more liquidity and its integrated value chain. The valuation
                                                                                                                    US$3m in staff costs monthly. Currently, CP is trading at 1.0x
gap between CP and CMHI widened in FY06-FY07 when the
                                                                                                                    FY10F P/BV, nearly half of the average of 1.8x since its listing
A-share market boomed, but narrowed again as the market
                                                                                                                    at end-1994, which implies limited downside risk.
slumped between late 2007 and end 2008.



PE chart (compared to CMHI)                                                                                       PB chart (compared to CMHI)


 x                                                                                                                 x
 40                                                                                                                6
 35
                                                                                                                   5
 30
 25                                                                                                                4
 20                                                                                                                3
 15
                                                                                                                   2
 10
                                                                                                                   1
  5
  0                                                                                                                0
                                                                                                                        Jan-99

                                                                                                                                 Jan-00

                                                                                                                                          Jan-01

                                                                                                                                                   Jan-02

                                                                                                                                                            Jan-03

                                                                                                                                                                     Jan-04

                                                                                                                                                                              Jan-05

                                                                                                                                                                                       Jan-06

                                                                                                                                                                                                Jan-07

                                                                                                                                                                                                         Jan-08

                                                                                                                                                                                                                  Jan-09

                                                                                                                                                                                                                           Jan-10
      Jan-99

               Jan-00

                        Jan-01

                                 Jan-02

                                          Jan-03

                                                   Jan-04

                                                            Jan-05

                                                                     Jan-06

                                                                              Jan-07

                                                                                       Jan-08

                                                                                                Jan-09

                                                                                                         Jan-10




                                          CP                                  CMHI                                                                             CP                                  CMHI

Source: Bloomberg, DBS Vickers                                                                                    Source: Bloomberg, DBS Vickers




PE band chart                                                                                                     PB band chart


 Share Price (HK$)                                                                                                 Share Price (HK$)
 30                                                                                                                35
                                                                                                                   30                                                                                                      2.9x
 25
                                                                                                         24x       25                                                                                                      2.3x
 20
                                                                                                          19x      20                                                                                                      1.6x
 15
                                                                                                          14x      15
 10                                                                                                                                                                                                                        1.0x
                                                                                                          9x       10
  5                                                                                                       4x        5                                                                                                      0.4x
  0                                                                                                                 0
       Jan-99




      Dec-01




                                                                                                                         Dec-01
      Jun-99
      Nov-99
      Sep-00
      Feb-01
      Apr-00



      May-02
      Oct-02
      Mar-03




                                                                                                                          Jan-99
                                                                                                                         Jun-99
                                                                                                                         Nov-99
                                                                                                                         Sep-00
                                                                                                                         Feb-01

                                                                                                                         May-02
                                                                                                                         Oct-02
                                                                                                                         Mar-03
        Jul-01



      Aug-03
       Jan-04
      Jun-04
      Nov-04
      Sep-05
      Feb-06
      Dec-06
      Apr-05



      May-07
      Oct-07




                                                                                                                         Apr-00
      Mar-08




                                                                                                                           Jul-01



                                                                                                                         Aug-03
                                                                                                                          Jan-04
                                                                                                                         Jun-04
                                                                                                                         Nov-04
                                                                                                                         Sep-05
                                                                                                                         Feb-06
                                                                                                                         Dec-06
                                                                                                                         May-07
                                                                                                                         Oct-07
                                                                                                                         Mar-08
        Jul-06




                                                                                                                         Apr-05
      Aug-08
       Jan-09
      Jun-09
      Nov-09




                                                                                                                           Jul-06



                                                                                                                         Aug-08
                                                                                                                          Jan-09
                                                                                                                         Jun-09
                                                                                                                         Nov-09




Source: Bloomberg, DBS Vickers                                                                                    Source: Bloomberg, DBS Vickers




                                                                                                                                                                                                                                    Page 71
China Port Sector
COSCO Pacific




Peers Valuation Table

                                              Cur                              PE                   ROE                 PB
                                             Mkt
                                                           Px
 Company                         Ticker       Cap                 PEG
                                                          Last          09Y    10Y    11Y    09Y    10Y    11Y    09Y   10Y   11Y
                                             (US$
                                              m)
 H-share ports ^                                                  0.8   16.5   14.5   12.8    7.8    9.4    9.3   1.2   1.2   1.2
 China Merchants Holdings         144.HK      8,360       26.70   1.1   20.1   19.5   16.7   10.1    9.7   10.7   1.9   1.8   1.7
 COSCO Pacific                   1199.HK      3,419        9.80   0.3   16.5    9.6   11.0    6.5   10.6    8.5   1.0   0.9   0.9
 Dalian Port PDA                 2880.HK      1,216        3.23   0.9   13.5   12.3   10.5    9.3   10.1   11.4   1.2   1.2   1.1
 Xiamen Int'l Port               3378.HK        488        1.39   0.8   16.1   13.3   12.0    5.4    6.3    6.7   0.9   0.8   0.8
 Tianjin Port Dev                3382.HK      1,355        1.71   NA     NA    17.7   14.1    NA    10.5    9.3   0.9   1.4   1.3
 A-share container ports                                          NA    20.7   18.9   17.2   12.7   12.3   12.8   2.6   2.4   2.3
 Shenzhen Chiwan Wharf         000022.CH      1,115       12.19   NA    17.7   15.5   13.9   15.4   16.5   16.7   2.7   2.5   2.3
 Shenzhen Yantian Port         000088.CH      1,154        6.28   NA    17.5   17.0   15.8   11.0    9.9    9.6   1.9   1.7   1.8
 Shanghai Int'l Port Group     600018.CH     12,115        3.91   NA    21.5   18.7   17.5   11.7   13.0   13.3   2.6   2.4   2.2
 A-share bulk ports                                               NA    38.8   24.8   20.7    7.9    9.3   10.4   2.4   2.2   1.9
 Tianjin Port                  600717.CH      2,015        8.15   NA    16.9   16.2   13.8    8.0    7.4    8.0   1.4   1.3   1.3
 Rizhao Port                   600017.CH      1,235        5.54   NA    22.4   16.8   14.4    9.1   12.2   13.0   2.0   1.8   1.7
 Jiangsu Lianyungang Port      601008.CH        443        5.58   NA    31.9   22.3   18.2    5.7    7.4    9.4   1.9   1.6   1.5
 Xiamen Port Development       000905.CH        567        7.24   NA    38.1    NA     NA     NA     NA     NA    NA    NA    NA
 Beihai Beihai Port            000582.CH        228       10.89   NA     NA     NA     NA     NA     NA     NA    NA    NA    NA
 Yingkou Port Liability        600317.CH        975        6.02   NA    31.5   29.1   24.8    6.2    6.3    7.8   2.0   1.8   1.8
 Nanjing Port                  002040.CH        278        7.65   NA     NA     NA     NA     NA     NA     NA    NA    NA    NA
 Chongqing Gangjiu             600279.CH        372       11.02   NA    61.2   38.7   31.9    NA     NA     NA    NA    3.1   NA
 Wuhu Port                     600575.CH        832       15.84   NA    78.4   20.8   18.1   10.6   13.4   13.7   4.5   3.2   3.1
 Jinzhou Port                  600190.CH      1,025        4.71   NA    30.0   29.4   23.6    NA     NA     NA    NA    NA    NA
 Container lease company                                          1.1   18.7   13.4   10.7   12.5   15.3   17.9   2.2   1.9   1.7
 Textainer Group                  TGH.US      1,275       26.56   1.0   18.4   12.5   11.0   16.0   19.2   19.8   2.6   2.3   2.0
 TAL Int’l                        TAL.US        782       25.48   1.2   19.9   14.9   12.3   10.2   12.6   15.2   NA    1.8   1.8
 CAI Int’l                        CAP.US        241       13.47   1.1   18.0   12.9    8.8   11.2   14.1   18.8   1.9   1.6   1.4
 Container manufacturers                                          NA    32.9   17.4   11.5    7.3    8.8   12.6   1.6   1.6   1.5
 Singamas Container               716.HK        502        1.62   NA     NA    18.9   11.0    NA     6.2   11.7   1.1   1.3   1.2
 China Int’l Marine            000039.CH      4,064       11.81   NA    32.9   15.8   12.1    7.3   11.4   13.6   2.1   2.0   1.8


Source: Bloomberg closing @ Jul 14, 2010, ^ DBS Vickers




Page 72
                                                                                                               China Port Sector
                                                                                                                  COSCO Pacific



Appendix: Key Management Team
Manager       Current           Previous Experience                                                                         Ownership
              Appointment
Chen          Non-executive     Is also Executive Vice President of China Ocean Shipping (Group) Company, Director and       1,000,000
Hongsheng     Director &        President of China COSCO Holdings Company Limited, Chairman of COSCO Logistics Co.,            Options
              Chairman          Ltd., COSCO Japan Co., Ltd. and Chinese-Polish Joint Stock Shipping Company, Director        (0.044%)
(60)                            of COSCO Container Lines Company Limited, COSCO Bulk Carrier Co., Ltd. And Qingdao
                                Ocean Shipping Co., Ltd.
                                Graduated from Sichuan Foreign Language College with a major in English, and from
                                Capital University of Economics and Business with a post-graduate qualification in
                                business administration.
                                Was the Deputy General Manager of Penavico Nantong Branch Company, General
                                Manager of Shipping Department of Penavico, General Manager of COSCO Beijing
                                International Freight Forwarding Company, Managing Director of COSCO International
                                Freight Forwarding Co., Ltd. and Deputy General Manager of COSCO Container Lines
                                Company Limited.
                                Currently Vice Chairman of China Enterprise Confederation and China Enterprise
                                Directors Association.
                                Has over 30 years experience in the shipping industry, especially in enterprise operation
                                and management.

Li Jianhong   Executive Director Is also Executive Vice President of China Ocean Shipping (Group) Company, Chairman of       1,000,000
                                 COSCO Corporation (Singapore) Limited, Sino-Ocean Land Holdings Limited, COSCO                Options
(53)                             Shipyard Group Co., Ltd., COSCO International Ship Trading Co., Ltd. and Chinese-           (0.044%)
                                 Tanzanian Join Shipping Company; Vice Chairman of China International Marine
                                 Containers (Group) Co., Ltd. and Suzhou Industrial Park Company Limited; Non-
                                 executive Director of China COSCO Holdings Company Limited and COSCO International
                                 Holdings Limited, and Director of COSCO Logistics Co., Ltd. and Boao COSCO Co., Ltd.
                                Also Vice Chairman of Chinese Society of Naval Architecture & Marine Engineering and
                                China Association of the National Shipbuilding Industry.
                                Was the General Manager of Nantong Shipyard, Managing Director of COSCO Industry
                                Co., Ltd., COSCO Property Ltd., and has been Assistant President and Chief Commercial
                                Officer of China Ocean Shipping (Group) Company since 1986.
                                Holds two Master Degrees in Business Administration from University of East London in
                                the United Kingdom and Jilin University.
                                A senior economist.

Sun Yueying Executive Director Is currently the Chief Financial Officer of China Ocean Shipping (Group) Company, a           1,000,000
                               Nonexecutive Director of China COSCO Holdings Company Limited and China Merchants               Options
(51)                           Bank Co., Ltd., a Director of a number of companies including COSCO (Hong Kong)               (0.044%)
                               Group Limited, COSCO Container Lines Company Limited and COSCO
                                Corporation (Singapore) Limited.
                                Graduated from Shanghai Maritime University majoring in shipping finance and
                                accounting.
                                A certified accountant and a senior accountant.
                                Had been the Vice Director of the Finance Division of Tianjin Ocean Shipping Co.,
                                Director and Finance Manager of COSCO Japan Co., Ltd. and the General Manager of
                                the Finance and Capital Division of and the Deputy Chief Financial Officer of China
                                Ocean Shipping (Group) Company.
Source: Company




                                                                                                                               Page 73
China Port Sector
COSCO Pacific



Appendix: Key Management Team (Continued)
Manager     Current            Previous Experience                                                                       Ownership
            Appointment
Xu Minjie   Executive Directo Is also a director of China International Marine Containers (Group) Co., Ltd.                800,000
            r, Vice Chairman,                                                                                              Options
(51)        and Managing Dir Graduated from the Marine Navigation Department of Qingdao Ocean Shipping                    (0.035%)
            ector,            Mariners College and obtained his Master of Business Administration degree from
                              Shanghai Maritime University and also obtained a Master Degree in Management from
            Also Chairman of Maastricht School of Management in the Netherlands
            the Investment
            and Strategic     Joined COSCO Group in 1980 and was appointed as Managing Director of COSCO
            Planning          Shanghai International Freight Company Limited in November 1998.
            Committee and a Was the Vice Chairman of Shanghai City Freight Forwarders Association during the
            member of the     period from December 1998 to September 2003 and was appointed as the General
            Executive         Manager of the Transportation Division of China Ocean Shipping (Group) Company in
            Committee,        September 2003.
            Nomination
            Committee and     Had been a former marine captain on COSCO’s ocean-going ships, General Manager of
            Remuneration      the Container Division, Operation Division, Export Division of Shanghai Ocean Shipping
            Committee         Company and Deputy Managing Director of Shanghai International Freight Forwarding
                              Company.
                               Was an Executive Committee member of China Communications and Transportation
                               Association from June 2005 to January 2007.
                               Has over 30 years of experience in the shipping industry and has demonstrated excellent
                               enterprise operation and management skills.

He Jiale    Executive Director Is also the Chief Financial Officer of China COSCO Holdings Co., Ltd. and director of
                               some of its subsidiaries.
(55)
                               Joined the COSCO group in 1974.
                               Was the Chief Accountant of COSCO Container Lines Company Limited in 1998, the
                               Financial Controller of COSCO (Hong Kong) Group Limited in 2003, an Executive
                               Director of the Company during 2003 to 2005, Deputy Director of the Finance Division
                               of Shanghai Ocean Shipping Company, the Deputy General Manager of Finance
                               Department of the COSCO Container Lines, the Deputy General Manager of Finance and
                               Capital Department of China Ocean Shipping (Group) Company and the Chief
                               Accountant of COSCO Container Lines Company Limited.
                               Graduated with post-graduate qualification in management science and engineering
                               from Shanghai University.
                               A senior accountant.
Source: Company




Page 74
                                                                                                             China Port Sector
                                                                                                                COSCO Pacific



Appendix: Key Management Team (Continued)
Manager    Current           Previous Experience                                                                       Ownership
           Appointment
Wong Tin   Executive Director Is the Chairman of The Hong Kong Institute of Directors, council advisor and past         2,300,000
Yau,                          chairman of the Hong Kong Chinese Orchestra Limited, a member of the OECD/World             options
Kelvin     Also Chairman of Bank Asian Corporate Governance Roundtable, a member of Main Board and GEM Listing          (0.101%)
           the Corporate      Committee of The Stock Exchange of Hong Kong Limited, a member of the SFC (HKEC
(49)       Governance         Listing) Committee, a member of the Board of Review (Inland Revenue Ordinance), board
           Committee and      director of Business Environment Council, a member of the Appeal Board Panel (Town
           member of the      Planning) and was appointed by the Hong Kong Special Administrative Region as a
           Executive          member of the Standing Committee on Company Law Reform.
           Committee
                              Obtained Master of Business Administration degree from Andrews University in Michigan,
                              USA, in 1992 and Doctor of Business Administration degree from The HongKong
                              Polytechnic University in 2007.
                             Was a member of the National Investor Relations Institute in the USA.
                             Has more than 25 years working experience in management, banking and securities
                             industries.
                             Is currently an Independent Non-executive Director and Chairman of the Audit Committee
                             of China Metal International Holdings Inc., Independent Non-executive Director of CIG
                             Yangtze Ports PLC and an Independent Non-executive Director of I.T Limited, and was an
                             Independent Non-executive Director of Tradelink Electronic Commerce Limited. All the
                             aforementioned companies are listed on The Stock Exchange of Hong Kong Limited.
                             Held various senior positions in several listed companies in Hong Kong before he joined
                             the Company in July 1996.
                             Responsible for overall management, strategic planning, financial management, and
                             investor relations

Yin Weiyu Executive Director Obtained a Master of Science degree with a major in Applied Mathematics from Graduate       500,000
          and Deputy         School of Sun Yat-Sen University in 1990.                                                    options
(43)      Managing                                                                                                      (0.022%)
          Director           Has been the Managing Director of COSCO Guangzhou International Freight Co., Ltd. and
                             Deputy General Manager of South China COSCO International Freight Co., Ltd.
          Also Chairman of
          Risk Management Responsible for the Company’s strategic planning and terminal and related business
          Committee and a development.
          member of the
          Executive
          Committee and
          Investment and
          Strategic Planning
          Committee

Source: Company




                                                                                                                          Page 75
China Port Sector
COSCO Pacific
Income Statement (US$ m)                                                      Balance Sheet (US$ m)
FY Dec                             2008A     2009A       2010F      2011F     FY Dec                       2008A       2009A     2010F     2011F
Turnover                             338        349        466        508     Net Fixed Assets              1,688       1,982     2,627     3,016
Cost of Goods Sold                  (165)      (200)      (260)      (258)    Invts in Assocs & JVs         1,498       1,354     2,025     2,100
Gross Profit                         173        149        205        250     Other LT Assets                 357         421       420       419
Other Opg (Exp)/Inc                   (7)        (49)       (73)       (79)   Cash & ST Invts                 431         426       313       205
Operating Profit                     166        100        132        171     Inventory                         5          10        15        14
Other Non Opg (Exp)/Inc                 0          0          0          0    Debtors                         232         182       243       265
Associates & JV Inc                  130          92       204        249     Other Current Assets              1         260         1         1
Net Interest (Exp)/Inc               (46)       (34)       (61)       (77)    Total Assets                  4,213       4,635     5,645     6,021
Exceptional Gain/(Loss)               25          31         92          0
Pre-tax Profit                       275        189        368        342     ST Debt                          67         194       206       230
Tax                                     5       (13)       (26)       (24)    Other Current Liab              127         152       229       216
Minority Interest                      (5)        (4)        (7)        (6)   LT Debt                       1,357       1,411     1,499     1,674
Preference Dividend                     0          0          0          0    Other LT Liabilities             16          20        20        20
Net Profit                           275        173        335        312     Shareholder’s Equity          2,552       2,742     3,568     3,751
Net profit before Except.            250        141        243        312     Minority Interests               94         116       123       129
                                                                              Total Cap. & Liab.            4,213       4,635     5,645     6,021
EBITDA                               389        290       443        532
Sales Gth (%)                        13.1       3.4       33.3        9.1     Non-Cash Wkg. Cap               112          300       30        64
EBITDA Gth (%)                     (19.6)     (25.4)      52.7       20.1     Net Cash/(Debt)               (993)      (1,178)   (1,391)   (1,699)
Opg Profit Gth (%)                 (21.8)     (39.8)      32.6       29.0
Effective Tax Rate (%)                N/A       7.0        7.0        7.0
Cash Flow Statement (US$ m)                                                   Rates & Ratios
FY Dec                             2008A     2009A       2010F      2011F     FY Dec                       2008A       2009A     2010F     2011F
Pre-Tax Profit                        275        189       368        342     Gross Margin (%)             51.0          42.7      44.1      49.2
Dep. & Amort.                          93         98        106        112    Opg Profit Margin (%)         49.1          28.6      28.4     33.6
Tax Paid                               (2)        (7)       (26)       (24)   Net Profit Margin (%)         81.3         49.4      71.9      61.4
(Pft)/ Loss on disposal of FAs         (8)        (6)       (92)          0   ROAE (%)                     10.4            6.5     10.6        8.5
Assoc. & JV Inc/(loss)              (130)        (92)     (204)      (249)    ROA (%)                        6.8           3.9       6.5       5.3
Non-Cash Wkg.Cap.                      35        (13)        11        (34)   ROCE (%)                       4.3           2.2       2.5       2.8
Other Operating CF                     29         31         65         79    Div Payout Ratio (%)         40.0          40.1      40.0      40.0
Net Operating CF                     266        175        227        227     Interest Cover (x)             3.6           3.0       2.2       2.2
Capital Exp.(net)                   (277)      (371)      (750)      (500)    Asset Turnover (x)             0.1           0.1       0.1       0.1
Other Invts.(net)                     (51)       103          29          2   Debtors Turn (days)         229.9         216.5     166.7     182.5
Invts in Assoc. & JV                (322)         21      (262)           7   Creditors Turn (days)       694.2         484.3     440.1     546.4
Div from Assoc & JV                   159         91        138        167    Inventory Turn (days)        38.8          27.1      29.2      36.3
Other Investing CF                      1        (66)          0          0   Current Ratio (x)              3.4           2.5       1.3       1.1
Net Investing CF                    (489)      (222)      (845)      (324)    Quick Ratio (x)                3.4           1.8       1.3       1.1
Div Paid                            (218)        (54)       (94)     (129)    Net Debt/Equity (X)            0.4           0.4       0.4       0.4
Chg in Gross Debt                     446        185        100       200     Capex to Debt (%)            19.4          23.1      44.0      26.3
Capital Issues                          0          0        585          0    Z-Score (X)                    1.8           1.8       1.9       2.0
Other Financing CF                    (40)       (30)       (66)       (81)   N.Cash/(Debt)PS (US$)        (3.4)         (4.1)     (4.2)     (4.9)
Net Financing CF                     187        101        525        (11)    Opg CFPS (US$)               0.80          0.65      0.66      0.75
Net Cashflow                          (35)        54        (93)     (107)    Free CFPS (US$)             (0.04)        (0.68)    (1.59)    (0.78)
Interim Income Statement (US$ m)                                              Segmental Breakdown (US$ m)
FY Dec                        1H2008         2H2008     1H2009     2H2009     FY Dec                      2008A       2009A      2010F     2011F
Turnover                             162        176        159        190     Revenues
Cost of Goods Sold                   (78)       (88)       (86)      (114)     Container terminal            85         120        211        238
Gross Profit                          84         88         73         76      Container lease,             253         230        255        270
Other Oper. (Exp)/Inc                  3        (10)       (15)       (34)    management, and sale
Operating Profit                      88         78         58         42      Container manufacturing        0           0          0          0
Other Non Opg (Exp)/Inc                0          0          0          0      Others                         0           0          0          0
Associates & JV Inc                   98         33         71         22     Total                         338         349        466        508
Net Interest (Exp)/Inc               (22)       (23)       (20)       (14)    Operating profits
Exceptional Gain/(Loss)                0          0          6          0      Container terminal            20          20         29         47
Pre-tax Profit                       163         88        114         50      Container lease,             128          83        102        122
Tax                                   (6)        11         (8)        (6)    management, and sale
Minority Interest                     (3)        (2)        (2)        (2)     Container manufacturing        0            0         0          0
Net Profit                           153         97        105         42      Others                        18          (3)         1          2
Net profit bef Except.               153         97         99         42     Total                         166         100        132        171
EBITDA                               231        158        176        114     Operating profits Margins
                                                                               Container terminal          23.6        17.0       13.8       19.9
Sales Gth (%)                       10.0        16.0       (1.9)       8.2     Container lease,            50.7        35.9       40.0       45.0
EBITDA Gth (%)                      11.1      (42.8)     (23.7)     (27.9)    management, and sale
Opg Profit Gth                      16.1      (42.7)     (34.3)     (46.0)     Container manufacturing      N/A          N/A       N/A        N/A
Net Profit Gth (%)                   3.1      (65.4)     (31.8)     (56.1)     Others                       N/A     49,033.3       N/A        N/A
Gross Margins (%)                   52.1        50.1       45.9       40.0    Total                        49.1         28.6      28.4       33.6
Opg Profit Margins (%)              54.0        44.6       36.2       22.3
Net Profit Margins (%)              94.5        54.9       65.7       22.3




Page 76
                                              China Port Sector
                                                COSCO Pacific




This page has been left blank intentionally




                                                         Page 77
China Port Sector
Dalian Port
Bloomberg: 2880 HK | Reuters: 2880.HK




BUY HK$3.23 HSI : 20,561                                                                     Good as black gold
Price Target : 12-Month HK$ 4.18
Potential Catalyst: Higher oil demand and proposed A-share IPO                               •   Dalian Port is a leading port in North-Eastern China and
                                                                                                 has a near monopoly on oil imports
Analyst
Ken He +86 21 6888 3375                                                                      •   Container, automobile and other port-related segments
ken_he@hk.dbsvickers.com                                                                         should also benefit from the region’s growth, driven by
                                                                                                 revitalisation plan
Paul YONG CFA +8621 6888 3372
paulyong@dbsvickers.com                                                                      •   Potential A-share listing could drive re-rating
                                                                                             •   Maintain BUY rating, TP HK$4.18, offering nearly 30%
Price Relative                                                                                   potential upside.
          HK$                                                       Relative Index

                                                                              218            Defensive play. Dalian Port (DLP) mainly operates oil, container,
       8.10
       7.10
                                                                              198
                                                                              178
                                                                                             and automobile terminals in Dalian. It handled nearly 90% of
       6.10                                                                   158
                                                                              138
                                                                                             all oil imports in North-Eastern China, and hence has a more
       5.10
       4.10
                                                                              118
                                                                              98
                                                                                             stable income stream compared to other ports that rely more
       3.10
                                                                              78             on container or commodity trade. Oil related business
       2.10
                                                                                             accounted for 54% of revenue and 63% of gross profit in FY09.
                                                                              58
       1.10                                                                 38
          2006             2007            2008              2009        2010


          Dalian Port (PDA) (LHS)                    Relative HSI INDEX (RHS)
                                                                                             Multiple growth drivers. Besides rising demand for imported
                                                                                             crude oil and the large-scale crude terminals added by DLP,
                                                                                             which will help drive earnings in its oil-related business, the
Forecasts and Valuation
                                                                                             container segment will also benefit from the North-Eastern
                                                                                             revitalization plan. In addition, more transshipment and
                                        2008A          2009A        2010F          2011F
FY Dec (RMB m)                                                                               intermodal transportation businesses are expected for DLP.
Turnover                                  1,587            1,678    1,942           2,258
EBITDA                                      945              953    1,260           1,511    Acquisition plans to enhance competitive edge. It plans to
Pre-tax Profit                            1,032              667      817             979    acquire the dry bulk terminal operations from its parent after
Net Profit                                  780              609      671             786    the completion of the A-share IPO, currently in the proposal
Net Pft (Pre Ex.)                           401              571      670             786
EPS (RMB)                                  0.27             0.21     0.23            0.27    stage. This will enable it to expand its portfolio and also have in
EPS (HK$)                                  0.31             0.24     0.26            0.31    place a new financing platform for further port investments.
EPS Gth (%)                                27.5            (21.9)    10.2            17.1
Diluted EPS (HK$)                          0.31             0.24     0.26            0.31    Attractive valuation. We are forecasting sales and net profit
DPS (HK$)                                  0.10             0.29     0.10            0.12    CAGR at 16% and 14%, respectively, over FY09-FY11F, before
BV Per Share (HK$)                         2.49             2.63     2.61            2.81    accounting for the potential assets acquisition and A-share
PE (X)                                     10.6             13.5     12.3            10.5
P/Cash Flow (X)                            10.2             11.1     10.0             8.4
                                                                                             listing. Our SOP-based TP is HK$4.18, implying a 16.0x FY10F
EV/EBITDA (X)                               9.7             10.8      9.3             7.9    PE and 1.6x FY10 P/BV, providing nearly 30% upside from
P/Free CF (X)                                nm               nm      nm             46.4    current share price. A re-rating may be driven by its A-share
Net Div Yield (%)                           3.2               8.9     3.2             3.8    listing as A-shares are trading at much higher multiples.
P/Book Value (X)                             1.3              1.2     1.2             1.1
Net Debt/Equity (X)                          0.1              0.3     0.5             0.5    At A Glance
ROAE (%)                                   12.8               9.3    10.1            11.4    Issued Capital - H shares (m shs)                    1,063
                                                                                                              - Non H shrs (m shs)                1,863
Earnings Rev (%):                                                       Nil            Nil   H shs as a % of Total                                    36
Consensus EPS (HK$):                                                  0.24           0.27    H Mkt. Cap (HK$m/US$m)                          3,432 / 442
                                                                                             Major Shareholders
                                                                                                  Dalian Port Corp (%)                             62.1
                                                                                             Major H Shareholders (%)
ICB Industry: Industrials                                                                         JPMorgan Chase & Co. (%)                         12.1
ICB Sector: Industrial Transportation                                                             Nippon Yusen Kabushiki Kaisha (%)                10.8
Principal Business: Container and oil terminal operator in Dalian,                                Capital Research and Mgt Company (%)              9.0
also offering tugging, pilotage, tallying, and information technology                             Schroder Investment Mgt (HK) Limited              7.0
services.                                                                                         China Shipping (Group) Co., Ltd. (%)              6.9
Source of all data: Company, DBSV, Bloomberg, HKEX                                           H Shares-Free Float (%)                               54.2




Page 78
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed- JS / sa-DC
                                                                                                               China Port Sector
                                                                                                                     Dalian Port




THE BUSINESS MODEL                                                 throughput in the Dalian hub broke through 200mn mt in 2009,
                                                                   registering 10% yoy growth. DLP is the largest oil terminal
Integrated port operator in Dalian. Dalian Port (DLP) is a leading operator, largest container terminal operator, and the largest
port operator in Dalian City, Liaoning Province, located in the    automobile terminal operator in the North-Eastern China in
centre of the North-Eastern Asia Economic Circle. DLP is           terms of annual throughput, handling nearly 90% of oil
principally engaged in oil/liquefied chemicals handling and        imported into the three North-Eastern provinces in 2009.
storage, containers handling, automobiles handling and port
value-added services. It was listed on the HKEx on Apr28, 2006 Continuing asset injection and proposed A-share listing. DLP is
at an IPO price of HK$2.575.                                       62.09% owned by its parent – Dalian Port Corporation Ltd.
                                                                   (PDA). DLP has completed several acquisitions from PDA and is
Near monopoly in North-Eastern China. Located at the entrance looking to acquire more valuable assets from PDA to enhance
of Bohai Bay, Dalian Port serves the hinterland of North-Eastern synergies and competitiveness. On Oct 15, 2009, DLP
China and eastern Inner Mongolia. Dalian Port is a deep water      announced the proposed issue of A shares and further asset
and ice-free port as compared to other ports in Bohai Bay. There acquisitions from PDA. The target assets include ore terminal,
are 100 shipping routes developed connecting the port of           general cargo, bulk grain, passenger and Ro-Ro terminal
Dalian to over 300 ports in more than 160 countries. Total         operations, and other port ancillary operations.

 Dalian Port (PDA)’s Structure


                                Other promoters                   PDA


                                         1.59%                       62.09%

                                                            Dalian Port (PDA)      36.32%              Public
                                                                 Co., Ltd.                        H-share 2880.HK




      Oil/liquefied chemicals          Container terminal and           Port value-added                  Automobile terminal
      terminal and logistics              logistics services            services including                and logistics services
              services                                                  tallying, vessel
                                                                        navigation, tugging and
                                                                        information technology
                                                                        services



Source: Company, DBS Vickers

                                                                    Oil terminal dominance in North-Eastern China. DLP operates
Oil/liquefied chemicals handling and storage operations
                                                                    a total of 18 oil/liquefied chemicals berths, including a
Core business, with high margin. DLP handled a total of             300,000DWT crude oil terminal, one of the largest oil
39.8mn mt oil/liquefied throughput in FY09, up 14.1% yoy,           terminals in China capable of accommodating large oil vessels.
driven by increasing demand for crude oil and crude oil trans-      A new 300,000DWT crude oil terminal, which is a JV between
shipment business. Crude oil throughput accounted for               DLP and PetroChina, will commence operations on a trial basis
99.8% (99.5% in FY08) of the total amount of imported               in 1H10. By end-10, gross handling capacity of all oil terminals
crude oil into Dalian and 89% (96% in FY08) of the total            will be over 82.6mn mt per annum. The port of Dalian is the
amount of imported crude oil in the Three North-Eastern             only one able conduct trans-shipment services of imported
Provinces in FY09. Its oil business accounted for 54% of total      crude oil for petrochemical enterprises in Dalian and Bohai Bay.
revenue and 63% of total gross profits, due to the higher
gross margin for this segment.




                                                                                                                              Page 79
China Port Sector
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Revenue Breakdown FY09                                            Segmental Gross Profit Breakdown FY09


                                          Container
                                                                                                                   Container
                                        terminal and
                                                                                                                 terminal and
                                           logistics
                                                                                                                    logistics
                                             23%
                                                                                                                      12%


                                                                                Oil/liquefied
          Oil/liquefied                                                           chemicals
            chemicals                                                           terminal and
          terminal and                                                             logistics
             logistics                                                               63%
               54%
                                                                                                                Prot value-
                                          Prot value-                                                             added
                                            added                                                                  25%
                                             23%

Source: Company, DBS Vickers                                      Source: Company, DBS Vickers




 Oil Terminal Assets
                                                                                                                           Design
                                                                   Berth/tank      Max ship
            Terminal            Stake        Partner       Area                                            Category       capacity
                                                                          no.    size (DWT)
                                                                                                                          (mn mt)
  Xingang No.0                  100%                    Xingang             1       300,000                Crude oil         22.9
  Xingang No.1                  100%                    Xingang             1       150,000                Crude oil          12.0
  Xingang No.2                  100%                    Xingang             1        80,000        Crude/refined oil            7.0
  Xingang No.3-12, 15-17        100%                    Xingang            13        50,000              Refined oil          20.7
  Xingang No.13-14               50%         Odfjell    Xingang             2         5,000      Liquefied chemicals            1.0
  Xingang No.22                  50%    PetroChina      Xingang             1       450,000                Crude oil          19.0
  Total                                                                    19                                                 82.6

 Source: Company, DBS Vickers



 Major Customers of Oil Handling Business
                                                                                                           Annual
                                                                                                                       Utilization
       Major Customers                                     Structure                                  capacity (mn
                                                                                                                             2009
                                                                                                                mt)
  Dalian PetroChemical          PetroChina                                                                     20.5           78%
  West Pacific Petrochemical    PetroChina 28.44%, Dalian Construction Investment Corp.
  Co., Ltd. (WEPEC)             15.53%, Sinochem 33.63%, Total 22.41%                                         10.0            86%

 Source: Company, DBS Vickers


                                                                 shipping company, Odfjell, to co-develop liquefied chemical
Strategic alliance with customers. Two out of seven refineries
                                                                 terminal and storage projects. In addition, it has a strategic
are located in North-Eastern China, the largest geographic
                                                                 alliance with PetroChina to develop the new 300,000DWT
exposure to refineries in China. DLP serves two major customers
                                                                 crude oil terminal.
in Dalian - Dalian PetroChemical (subsidiary of PetroChina, one
of the largest petrochemical enterprises in China) and WEPEC
(Sino-France JV in Dalian). It successfully introduced Norwegian




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                                                                                                                China Port Sector
                                                                                                                      Dalian Port



Growing oil storage business. As a complementary business of        storage capacity in 3-5 years in order to attract more trans-
oil terminal operations, DLP is also engaged in oil storage         shipment business.
business with over 5.8mn m3 storage capacity as of end-09.
Dalian is one of four locations designated as a strategic crude oil Designated Strategic Oil Reserve Bases (First Phase)
reserve base (First Phase) in China, and this should boost crude
oil throughput through Dalian Port.                                   Location                               Designated capacity
                                                                                                                                 3
                                                                     Dalian Xingang                       19mn barrels / 3mn m
The revenue from its oil storage surged 132% yoy in FY09 to                                                                      3
                                                                     Qingdao Huangdao                     19mn barrels / 3mn m
RMB313m, and accounted for 35% of the total revenue from                                                                         3
                                                                     Zhoushan Zhenhai                     33mn barrels / 5mn m
the oil business. Supported by its oil storage business, DLP is                                                                  3
                                                                     Zhoushan Aoshan                      33mn barrels / 5mn m
looking to position itself as an international crude oil
distribution centre. In FY09, its crude oil transhipment business   Source: DBS Vickers
jumped 274% to 1.2mn mt. However, the transhipment
business is constrained by the current storage capacity. The
bonded area within Dalian Port is aiming for a total 20mn m3

 Oil Storage Tanks Assets
                                                                                                                            3
  Oil storage tanks                    Stake            Partner            Area       Berth/tank no.     Design capacity (m )

  Xingang - crude                     100%                             Xingang                   35                 3,500,000
  Xingang - refined                   100%                             Xingang                   39                   368,000
  Xingang - chemical                    50%              Odfjell       Xingang                   51                   119,750
  DP Storage                            20%         PetroChina         Xingang                   20                 1,850,000
  Total                                                                                         145                 5,837,750


 Source: Company, DBS Vickers




More projects to support future development. The construction       A LNG terminal, with investments made by DLP, PetroChina and
of several projects was completed in FY09 and will commence         Dalian Construction Investment Co., is under construction in
operating in FY10. These projects include:                          Xingang. The terminal, with a capacity of 3.0mn mt per annum,
                                                                    is scheduled for completion in 2011/12. In addition,
• The storage tank project of Dalian PetroChina Int’l Storage       PetroChina’s oil storage tank project (12 refined oil storage
  Co., Ltd. (JV of DLP and PetroChina) is completed , the 20        tanks with a capacity of 0.24mn m3 per annum and 14 crude oil
  storage tanks with a capacity of 1.85mn m3 per annum is           storage tanks with a capacity of 1.4mn m3 per annum) is
  expected to be put into operation in July 2010.                   scheduled to be completed in 2010, increasing DLP’s port
                                                                    handling business.
• The new 300,000DWT crude oil terminal is expected to
  commence operation by end-10.                                     In 2009, imported oil surpassed domestically produced oil.
                                                                    Demand for oil is very strong, leading to more crude oil imports,
• A refined oil berth with a capacity of 0.7mn mt per annum         hence increasing DLP’s port handling and transhipment
  was put into trial operations at end-09.                          businesses. In 1Q10, crude oil throughput reported by DLP
                                                                    jumped 48% yoy, after growing 21% in FY09.




                                                                                                                                Page 81
China Port Sector
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Rising Oil Throughput and Blended Tariff                       Throughput and FT Proportion of Container Business


 mn mt                                              RMB/mt      mn TEU
 42                                                   24        4.6                                                   92%
                                                       23       4.4                                                   90%
 40
                                                       22       4.2                                                   88%
 38                                                    21       4.0                                                   86%
                                                       20       3.8                                                   84%
 36
                                                       19       3.6                                                   82%
 34                                                    18       3.4                                                   80%
                                                       17       3.2                                                   78%
 32
                                                       16       3.0                                                   76%
 30                                                    15                2006        2007         2008       2009
          2006       2007       2008        2009                                 Total throughput (LHS)
          Throughput (LHS)             Tariff (RHS)                              Foreign trade proportion (RHS)

Source: Company, DBS Vickers                                   Source: Company, DBS Vickers




 Container Terminal Assets

                                                                                                                        Design
                                                                                              Depth                    capacity
                                                               Berth                                       Max ship
  Terminal                     Stake    Operator        Area           Quay length (m)      alongsid                       (mn
                                                                 no.                                     size (DWT)
                                                                                               e (m)                   TEU/mn
                                                                                                                            mt)
  Dalian Hub
                                                                                               12.5-
  Dayao No.3-7                  51%          DCT       Dayao      5               1,459                     50,000    2,000,000
                                                                                                14.4
                                                                                                            10,000-
  Dayao No.9-10*                51%          DCT       Dayao      2                 395          9.8                   300,000
                                                                                                             25,000
  Neimao No.1-2#                40%     DDCT.CS       Dagang      2                 438      11-11.5         10,000    200,000
                                                                                                            35,000-
  Dayao No.11-12*               35%        DPCM        Dayao      2    2,152 for 6 bert         13.9                   550,000
                                                                                                             55,000
                                                                          hs of phase II
  Dayao No.13-14                35%        DPCM        Dayao      2                             16.0         70,000    800,000
                                                                           1,842 for 5
  Dayao No.17-18 (Phase III)    40%         DICT       Dayao      2    berths of phase          16.0        70,000    1,200,000
                                                                                    III
  Subtotal                                                       15                                                   5,050,000
  Outside Dalian
  Jinzhou New Era               15%          N.A.       N.A.      2                N.A.         N.A.          N.A.     800,000
  Qinhuangdao New Port          15%          N.A.       N.A.      2                N.A.         N.A.           N.A.    650,000
  Subtotal                                                        4                                                   1,450,000

 Source: Company, *owned by DPC, leased to and operated by DCT, #owned by PDA, leased to and operated by DDCT.CS

 DCT: Dalian Container Terminal Co., Ltd., DICT: Dalian International Container Terminal Co., Ltd., DPCM: Dalian Port Container
 Terminal Co., Ltd., DDCT.CS: Dalian Dagang China Shipping Container Terminal Co., Ltd.




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                                                                                                               China Port Sector
                                                                                                                      Dalian Port



                                                                    Port value-added and automobile handling businesses
Container handling operations

                                                                    Automobile terminal – a long term driver. In 1H07, DLP
Container Terminal Operators’ Structure                             acquired various assets from the parent including a 40% equity
                                                                    interest in Dalian Automobile Terminal, a JV between DLP,
 Company                                         Structure          COSOCO Pacific (30%), and NYK (30%). Dalian Port is one of
 DPC                                  100% owned by DLP             the four approved automobile import ports. DLP currently
 DCT              51% owned by DPC; 49% owned by PSA                operates two berths with an annual handling capacity of
 DDCT.CS        35% owned by DCT; 35% owned by CSTD;                370,000 vehicles. In FY09, it handled 50,248 vehicles, up
                  22% owned by DPC; 8% owned by PSA                 211% yoy, due to strong domestic trade and the two new
 DICT           40% owned by DPC; 40% owned by CSTD;                shipping routes connecting with Guangqi Honda Automobile
                                   20% owned by NYK                 Co. and Shanghai Automotive Industry Co. in FY09. It
 DPCM             35% owned by DPC; 25% owned by PSA;               automobile throughput accounted for 92% (67% in FY08) of
                    20% owned by COSCO Pacific and 20%
                                                                    total vehicle throughput in the Northeastern provinces.
                                      owned by Maersk

Source: Company                                                     Due to the short operating history, its automobile terminal
                                                                    business recorded a net loss of RMB2.9bn in FY09, narrowing
DPC: Dalian Port Container Co., Ltd., PSA: PSA Corp. Ltd.,
CSTD: China Shipping Terminal Development Co., Ltd., NYK:           from FY08’s RMB10bn. Management guided that the
Nippon Yusen Kabushiki Kaisha Line,                                 automobile terminal may achieve breakeven if annual
                                                                    throughput reach 80k-100k units. DLP has handled a total of
Benefiting from North-Eastern revitalization plan. The North-       56,634 units in 5M10, which already overpassed the full year
Eastern revitalization plan has aided the increase of domestic      number last year. As such, we expect the automobile terminal
trade. DLP’s gross container throughput increased 0.6% yoy in       to stop loss by 2010, and generate earnings thereafter. We are
FY09 to 5.5mn TEUs, representing 96% (97% in FY08) of total         projecting auto demand to grow at double digit rates till 2020.
throughput in Dalian and 65% (68% in FY08) in the three             Dalian Port also aims to attract importers to store and
North-Eastern provinces. Its container traffic for foreign trade    distribute their vehicles at the bonded port area.
accounted for approximately 67% of its total container
throughput and continued to dominate the region with 100%           Exclusive port value-added service provider in Dalian Port. DLP
market share in Dalian and 97% in the North-Eastern China.          offers value-added services including tugging, pilotage, tallying
                                                                    and IT services. Driven by its tugging business, the revenue
JV with various partners. DLP holds container terminal assets       from value-added services increased 14% in FY09 and
mainly through alliances with partners. It operates 15 berths in    contributed 23% (21% in FY08) of total revenue and 25%
Dayao Bay and 4 berths outside Dalian, with an aggregate            (22% in FY08) of total gross profit.
capacity of 6.5mn TEUs per annum. All the container terminal
assets of DLP are held through jointly controlled entities or
associates; hence, its revenue from container logistics and
agency businesses only accounted for 23% of total revenue in
FY09. Gross profit from container business accounted for 12%
(23% in FY08) of total gross profit, due to a rising proportion
of contribution from the lower margin domestic business.

Leading position in sea-to-rail business. As DLP continues to
promote the construction of the inland container logistics
network, DLP’s volume of sea-to-rail transportation grew 7.7%
yoy to 253,000 TEUs in FY09.

The Dayao Bay port area is the third bonded harbour area
approved by the government. The volume of trans-shipment
containers increased 44.9% yoy in FY09 to 487,000 TEUs.

Looking ahead, as China accelerates the construction of the
railway network, DLP may see more sea-to-rail joint businesses.
In addition, its bonded logistics park should attract more trans-
shipment business.




                                                                                                                              Page 83
China Port Sector
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GROWTH PROSPECTS                                                                 As the oil refinery business is concentrated in the Northeastern
                                                                                 region and Dalian Port has the monopoly in the region, we
Leveraging on the growing appetite for crude oil in China.                       believe that rising crude oil imports will drive throughput
China’s appetite for oil is rising fast due to the rapid economic                growth for Dalian oil terminals, underpinning demand for the
growth. As consumption of crude oil outpaced domestic crude                      new large scale terminal and the enlarged oil storage facilities
oil production, the volume of imported oil increased                             in the bonded area.
significantly at a CAGR of 17.1% over 2002-2009. In 2009,
imported crude oil even surpassed domestic production and                        More refinery projects in Dalian. Due to its strategic location
accounted for 52.5% of total consumption. In 1H10, imported                      and port facilities in Dalian, PetroChina plans to add 10mn mt
crude oil continued to grow 30% yoy and accounted for                            refinery capacity in Dalian (no further details available). In
54.1% of total consumption. Rising consumption for crude oil                     addition, the “Program for the development of the
is similarly experienced by all developing nations.                              petrochemical industry at port industrial zone in Dalian
                                                                                 Changxing Island” was approved in Aug 2008. Dalian
In addition, China has overtaken the US as the largest                           Changxing Island is targeting to be a leading global
automobile market. In 2009, total automobile sales surged                        petrochemical industry park by 2025. We believe more refinery
46% yoy to 13.6mn units. Due to the rising disposable income                     projects will lead to more crude oil imported through Dalian
and low vehicle penetration, we believe auto sales will grow at                  hub.
double digital rates in the mid-to-long term, further raising
demand for oil.

Crude Oil Apparent Consumption                                                  Auto Sales Growth (Yoy)

 mn mt                                                                           50%
 450                                                                      60%
                                                                                 45%
 400
                                                                          50%    40%
 350
 300                                                                      40%    35%
 250                                                                             30%
                                                                          30%
 200                                                                             25%
 150                                                                      20%
                                                                                 20%
 100
                                                                          10%    15%
  50
   0                                                                      0%     10%
          2002

                 2003

                        2004

                               2005

                                      2006

                                             2007

                                                    2008

                                                           2009

                                                                  2010E




                                                                                  5%
                                                                                  0%
                                                                                         2002

                                                                                                2003

                                                                                                       2004

                                                                                                              2005

                                                                                                                     2006

                                                                                                                            2007

                                                                                                                                   2008

                                                                                                                                          2009

                                                                                                                                                 2010E


                        Apparent consumption (LHS)
                        Import reliance (RHS)

Source: CEIC, DBS Vickers                                                       Source: CEIC, DBS Vickers

Riding on the economic rise in North-Eastern China. The North-                   implementation of the strategy to revitalize the old industrial
Eastern region is a traditional heavy industrial base, a key                     base, thus further boosting the industrial activity in the region.
petrochemical base and a major agricultural production base                      Dalian Port, with its dominant market share in this region, will
with an important strategic position in China. The region                        definitely be a key beneficiary.
accounted for around 1 out of 3 of China’s power generating
equipment production, 2 out of 7 oil refineries, 1 out of 10                     The Liaoning Coastal Economic Belt is set to bring a new wave
steel production, 1 out of 3 shipbuilding production, and 1 out                  of investment and Dalian will provide ample opportunities for
of 4 automobile production.                                                      foreign investors. With modern infrastructure in place, foreign
                                                                                 companies will be able to invest in sectors such as alternative-
The Chinese government has continued to focus on revitalizing                    energy automobiles as well as the computer and information
the old industrial base since 2003. Foreign trade into the                       industries.
region has accelerated since 2003 albeit it decelerated in 2009.
Meanwhile, GDP growth in the region lags China’s national                        Dalian Changxing Island also aims to be country’s shipbuilding
growth. In Aug 2009, China announced further                                     captial, attracting billions’ of investment from South Korea’s




Page 84
                                                                                                                                       China Port Sector
                                                                                                                                                    Dalian Port



STX Group, the Dalian Shipbuilding Industry Co., Singapore’s         aims to set up 18 railway container connection hubs across the
IMC Group, and China International Marine Containers (Group)         nation. Dalian is one of the 18 planned hubs, which may bring
Co., Ltd. (CIMC). The annual shipbuilding capacity on the            more sea-rail joint transportation businesses to DLP. In addition,
island is expected to reach 15.6mn DWT, which will make the          DLP’s inland ports and container logistics centre are under
the island the largest shipbuilding base in China.                   construction, which could extend DLP’s hinterland to other
                                                                     countries through the Eurasia Continent Bridge. Moreover, DLP
Potential of sea-rail joint transportation businesses. According     continues to promote containerization for the dry bulk cargo.
to national planning for railway development, the government

Foreign Trade Growth Rate (Yoy, %)                                  GDP Growth of the North-Eastern Provinces (Yoy, %)


  %                                                                  18.0
  60                                                                 16.0
  50                                                                 14.0
  40                                                                 12.0
                                                                     10.0
  30
                                                                      8.0
  20                                                                  6.0
  10                                                                  4.0
                                                                      2.0
   0
                                                                      0.0
 (10)
                                                                            1999

                                                                                   2000

                                                                                            2001

                                                                                                   2002

                                                                                                          2003

                                                                                                                 2004

                                                                                                                        2005

                                                                                                                               2006

                                                                                                                                      2007

                                                                                                                                             2008

                                                                                                                                                     2009

                                                                                                                                                            2010*
 (20)
        2003 2004 2005 2006 2007 2008 2009 5M10
                                                                                          China                                       Liaoning
               China              Northeastern China                                      Jilin                                       Heilongjiang

Source: CEIC, DBS Vickers                                           Source: CEIC, DBS Vickers, * target by central and local
                                                                    governments




Parent group plays a key role in consolidating the costal ports      In July 2009, the State Council approved the Planning for the
in Liaoning province. In early 2008, Dalian was designed to be       Liaoning coastal economic belt. The planning reiterated the
developed into an international shipping center in Northeastern      plan to consolidate costal port resources. PDA is expected to
Asia, to be used as a platform to consolidate costal ports in the    play a key role in consolidating the coastal ports in Liaoning
north Bohai Bay area. In Mar 2009, PDA stepped out of its            province so as to avoid disorderly competition and
consolidation plan by acquiring a 19.4% stake in Jinzhou Port        cannibalisation in the region. In addition, PDA may also inject
(600190.CH, 900952.CH) which is a costal port in western             these port assets into DLP, after the assets reach a certain
Liaoning province.                                                   profitability level.




                                                                                                                                                                Page 85
China Port Sector
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                                                                     1,200mn shares to the public for business expansion, general
Proposed A-share lPO and assets acquisition from PDA.                working capital and debt repayments. The target assets
                                                                     includes dry bulk terminals, passenger & Ro-Ro terminal
Overview of the transaction. In 2H09, DLP announced that it is       operations and ancillary port operations. The transaction has
proposing to acquire port-related assets from PDA and also           been approved by H-shareholders on Nov. 30, 2009, but is still
that it is proposing to issue A shares. The proposed A-share         pending the approval from Dalian SASAC and CSRC. The deal
issue comprises no more than 1,200mn consideration shares to         is expected to be completed by 2010.
PDA for the acquisition of target assets and no more than


 Proposed A-share IPO and Asset Acquisition

  Issued shares                  To                                                                     Comments & use of proceeds
  The lesser of RMB2,805m/IPO    Placement      Acquire bulk terminal assets from parent, 19.8x FY09 PER (assuming the same earning
  price and 1,200mn shares       to parent          in 2H09 as in 1H09), and 1.15x book value at Jun 30, 2009. Currently A-share bulk
                                                                      terminal operators is trading at 42.4x FY09PE, and 2.5x FY09PB.
  Less than 1,200mn shares       A-share              Investment in terminals and logistics, repayment of bank loans, working capital
                                 public

 Source: Company, DBS Vickers




 Major Operations of DLP and PDA


                                                               PDA




                  DLP                                                                                  Non-port businesses
                                                                            Target assets


                          Oil/liquefied chemical                         Ore terminal
                          terminal operation                             operation


                          Containers terminal                            General cargo
                          operation                                      terminal operation


                          Automobile terminal                            Bulk grain terminal
                          operation                                      operation


                          Port value-added                               Passengers and Ro-Ro
                          services                                       terminal operation


                                                                         Ancillary port
                                                                         operation




 Source: Company, DBS Vickers




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                                                                                                                     China Port Sector
                                                                                                                            Dalian Port



 Summary of Port Assets to be Acquired

  Business               Overview                                                                                      Strength & prospect
  Ore terminal           Two berths capable of accommodating up to                  Handled 50% of total volume imported ore in Liaoning
  operation              300,000DWT vessels and 150,000DWT vessels                                                     province in 1H09
                         respectively                                            Close to steel manufacturers including Angang Group and
                         Stacking yards with a total area of 534,000 sm                                                   Bengang Group
                         and storage capacity of a total of 5.2mn mt
  General cargo          33 berths with an annual handling capacity of         Strategic locations at Changxing Island and Zhuanghe are
  terminal               21.9mn mt                                           important development areas in the planning for the coastal
  operation              Stacking yards with a total area of 1.4mn sm                                  economic belt of Liaoning province
                                                                                 Benefit from the revitalization of heavy industry in North-
                                                                                                                       Eastern China region
  Bulk grain             5 berths with an annual handling capacity of                   Accounted for 19% of the bulk grain throughput of
  terminal               7.2mn mt                                                                              Northeastern China in 2008
  operation              Bulk grain barns with a total storage volume of         Benefit from the strategic positioning of the North-Eastern
                         1.1mn m3, 1,000 bulk grain carriages                        region as an important grain production base and the
                                                                                                 "North-South Grain Transportation" policy
  Passengers & Ro-       7 designated passenger and Ro-Ro berths, 2           Accounted for 45.2% and 59.1% of total passengers and Ro-
  Ro terminal            high speed boat berths, 4 domestic routes and                   Ro throughputs in Bohai Rim region respectively
  operation              1 international route                                           Expand operation scale to become the hub for the
                                                                                      passengers and Ro-Ro operations in Bohai Rim region

 Source: Company




Revenue and Profit Trend                                                Revenue Breakdown by Segments 1H09


 RMB m
 1,200                                                                                                                  Passenger
                                                                                                  General               and auto
                                                                                                   cargo                   5%
 1,000
                                                                                                    24%
  800
                                                                           Ore
  600                                                                      24%

  400
                                                                                                                            Ancillary
  200                                                                                                                        26%

     0
          2006       2007         2008        1H08       1H09                Bulk grain                               Others
               Revenue         Gross profit          Net profit                15%                                     6%

Source: Company, DBS Vickers                                            Source: Company, DBS Vickers




                                                                                                                                    Page 87
China Port Sector
Dalian Port



                                                                  consumption for iron ore surged 42% in 2009, with its
Use of Proceeds                                                   dependence on imported iron ore rising to 69% in 2009, from
                                                                  44% in 2002.
 Business              Development                        % of
                                                          total
                                                                  Strong demand from the auto sector and booming
 Ore terminal          Construction of stacking            58%
 operation             yards
                                                                  investments on the national railway network as well as for
                                                                  machinery will underpin iron ore consumption.
                       Purchase of gantry
 Container terminal    Phase II & III of the               11%
 operation             container terminal projects                Imported Iron Ore Growth
                       at Dayao Bay
                       Purchase container vessels
                                                                   mn mt
 General cargo         Relocation and                      10%
                                                                   700                                                                            45%
 terminal and          construction of berths at
 passengers & Ro-Ro    Dalian Bay                                  600                                                                            40%
 terminal operation                                                                                                                               35%
                                                                   500
                                                                                                                                                  30%
 Bulk gain terminal    Purchase of bulk grain              10%
 and automobile        carriages                                   400                                                                            25%
 terminal operation    Purchase of Ro-Ro ships                     300                                                                            20%
                                                                                                                                                  15%
 Logistic, port        Construction of logistics            4%     200
 value-added and       depots and centers                                                                                                         10%
 ancillary port                                                    100                                                                            5%
                       Construction of
 operation             information system                            0                                                                            0%
                                                                           2000

                                                                                   2001

                                                                                          2002

                                                                                                 2003

                                                                                                        2004

                                                                                                               2005

                                                                                                                      2006

                                                                                                                             2007

                                                                                                                                    2008

                                                                                                                                           2009
 Others                Repayment of bank loan               7%
                       General working capital
                                                                                  Imported iron ore (LHS)                           Growth (RHS)
Source: Company, DBS Vickers
                                                                  Source: CEIC, DBS Vickers
Expanding its port portfolio. The target assets includes 2 ore
berths, 33 general cargo berths, 5 bulk grain berths, 7           As discussed above, Northestern China accounted for around
passenger berths and port ancillary businesses, which will        1 out of 3 of China’s power generating equipment production,
expand DLP’s business mix, and enhance synergies and              2 out of 7 oil refineries, 1 out of 10 steel production, 1 out of
competitiveness. In addition, this will also enable DLP to        3 shipbuilding production, and 1 out of 4 automobile
leverage on the robust growth of dry bulk cargo throughput        production. We expect huge demand for iron ore in the
in Dalian hub, and further benefit from the revitalization of     region to support sustainable growth of ore throughput in
Northeastern China.                                               Dalian hub.

A shining asset – large scale ore terminal. We see great          A solid platform and two financing channels. The A-share
potential from acquiring the 300,000DWT ore terminal. Due         issue provide not only the fund for ongoing business
to the revitalization plans for steel, machinery and the auto     expansion, but also one more financing channel for future
sector, and the huge demand for infrastructure inputs, China      consolidation of port resources.




Page 88
                                                                                                                 China Port Sector
                                                                                                                       Dalian Port



                                                                     Shenyang economic zone the eighth experimental reform
Key risks                                                            region in China. The economic zone comprises seven other
                                                                     cities, namely Anshan, Fushun, Benxi, Yingkou, Fuxin, Liaoyang
Threats from Yingkou. Dalian Port also faces threat from             and Tieling, besides Shenyang. Yingkou is the only port city in
neighbouring ports especially Yingkou Port. A 300,000DWT             the region, and is designed to be the sea exit of “big
crude oil terminal has started operating in the port of Yingkou,     Shenyang”. This may dulite DLP’s business in the region.
with annual capacity of 18mn mt. Container throughput also
achieved rapid growth with a CAGR of 29% for the past                Rising oil price. International crude oil price has increased from
decade in the port of Yingkou, which inevitably will take away       US$33/barrel at the beginning of last year to over US$90/barrel
some business from DLP.                                              this year, albeit it has decreased slightly to US$78/barrel
                                                                     recently. Further rises in oil prices may curb consumers demand
                                                                     for oil and cars, which may affect oil handling business of DLP.
In addition, the Shenyang experimental economic zone plan
was approved by the State Council in Apr 2010, making the


 Freight Throughput Growth of Major Costal Ports in Bohai Rim Region

  mn mt              2000      2001      2002       2003      2004      2005       2006        2007       2008       2009       CAGR
  Dandong             4.86      5.42      6.06      7.08     10.53      15.06      20.06      26.10      32.59       43.50       32%
  Dalian             90.84    100.47    108.51    126.02    145.16     170.85    200.46      222.86     245.88     272.03        15%
  Yingkou            22.68      25.2     31.27     40.09     59.78      75.37      94.77     122.07     150.85     176.03        29%
  Qinhuangdao        97.43    113.02    111.67    125.62    150.37        169    204.89      248.93     252.31     249.42        12%
  Tianjin            95.66    113.69    129.06    161.82    206.19     240.69      257.6     309.46     355.93     381.11        19%
  Yantai             17.74      21.9     26.89     29.36     34.31      45.06      60.76     101.29     111.89     169.26        33%
  Weihai              6.69      7.27      6.71      8.40     11.43      10.15      14.14      17.30      16.20       20.08       15%
  Qingdao            86.36    103.98    122.13     140.9    162.65     186.78    224.15      265.02     300.29     315.46        18%
  Rizhao             26.74     29.33     31.36     45.07     51.08      84.21    110.07      130.63     151.02     181.31        27%
  Total             449.00    520.28    573.66    684.36    831.50     997.17   1186.90    1443.66     1616.96    1808.20
  Dalian's share      20%       19%       19%       18%       17%        17%       17%         15%        15%        15%

 Source: CEIC, DBS Vickers




                                                                                                                               Page 89
China Port Sector
Dalian Port



SEGMENTAL ANALYSIS                                                    boxes. Revenue from container segment dropped 33% yoy in
                                                                      FY09, due to the drop in global consumption. As foreign trade
Main driver: oil business. In FY09, revenue from the oil segment      rebounded sharply from end-09,we expect a pickup in foreign
jumped 35% in FY09, driven by 14% increase in throughput              trade boxes and a decline of empty containers. The third phase
and 18% rise of blended handling charges.                             of container terminal in Dayao terminal started operating on a
                                                                      trial basis at the end of FY09 and is expected to start
New 300k DWT crude oil terminal and more storage tanks will           commercial operations together with the Dalian Railway
be put into operation in 1H10, which will faciliate new oil           Container Logistics Centre in 1H10. This will facilitate the
handling business and oil trans-shipment. On the demand side,         expansion of the container transshipment business and
as China continues its industrialization and motorization trends,     intermodal transfer business. We forecast FY10-11 revenue to
we expect more imported crude oil to fuel the economy and             rise 10% each.
vehicles. In 1Q10, imported crude oil throughput handled by
DLP jumped 86% yoy.                                                   Gross margin of the container business lost 4.5ppt in FY09, and
                                                                      is expected to return to 28% in FY10 and FY11, on the back of
We forecast revenue to grow 21% in each of FY10 and FY11              rising handling charges as a result of the lower proportion of
supported by (i) 20% pa growth in throughput for crude oil,           empty containers and the rise in share of foreign trade.
15% for total oil & liquified chemical business, and (ii) 5% pa
increase in blended handling charges.                                 Port related business driven by tugging services. Revenue from
                                                                      port value-added business increased 13.7% in FY09, primarily
Gross profit margin of the oil business declined 3.7ppt to            attributed to the increasing demands for tugging services. We
52.7% in FY09, due to a significant increase in the revenue           expect port related revenue continues to grow 10% in each of
from lower-margin oil storage and the lower-margin oil sales.         FY10 and FY11, as four more tugboats delivered and put into
As the new large-scale oil terminal has commenced operating           operation. We also forecast the gross margin of port related
from early this year, we expect a larger proportion of                services recover to 50% as large portion of high-margin tugging
contribution from the higher-margin oil handling business in          business expected.
FY10 and FY11. Coupled with higher handling charges, we
estimate gross margin from the oil business to rise to 56% this       Total revenue is projected to grow at a CAGR of 16% in FY10
year and 58% in FY11.                                                 and FY11. Meanwhile, DLP’s gross margin is expected to
                                                                      improve to over 48%, which was mainly driven by its oil
Recovery in container throughput and margins. Container               segment. The forecast does not include the potential asset
throughput handled inched up 0.6% yoy in FY09, a decrease in          acquisition and operation expansion through A-share listing.
foreign trade containers was offset by a surge in domestic trade

Segmental Analysis

FY Dec                                                            2008A                2009A               2010F                2011F

Revenues
 Oil/liquefied chemicals terminal and logistics                       670                 906               1,092               1,324
 Container terminal and logistics                                     573                 384                 423                 465
 Port value-added                                                     339                 385                 423                 466
 Others                                                                 5                   3                   4                   4
Total                                                               1,587               1,678               1,942               2,258

Gross Profit
 Oil/liquefied chemicals terminal and logistics                      378                 478                  612                 768
 Container terminal and logistics                                    163                  92                  118                 130
 Port value-added                                                    154                 187                  212                 233
 Others                                                                5                  (4)                   3                   3
Total                                                                699                 752                  945               1,134

Gross Profit Margins
 Oil/liquefied chemicals terminal and logistics                      56.4               52.7                 56.0                58.0
 Container terminal and logistics                                    28.4               23.9                 28.0                28.0
 Port value-added                                                    45.4               48.6                 50.0                50.0
 Others                                                              88.2             (117.8)                80.0                80.0
Total                                                                44.0               44.8                 48.6                50.2

Source: Company, DBS Vickers




Page 90
                                                                                                         China Port Sector
                                                                                                                Dalian Port




INTERIM/QUARTERLY PERFORMANCE                                   Strong auto sales boosted auto throughput 6.6 fold to 33,970
                                                                units.
Strong 1Q10 results, fueled by oil. Total revenue in 1Q10 has
chalked 33% yoy growth, which was mainly attributable to the    DLP’s gross margin and operating margin improved by 8.1ppt
strong performance of oil segment. Oil throughput handled by    and 9.7ppt to 48.4% and 40.5% respectively in 1Q10 as
DLP increased 35% yoy as a result of 48%, 5% and 58% yoy        compared to the numbers in 1Q09, due to the increased
growth respectively for crude oil, refined oil and liquefied    portion of high margin oil segment. Meanwhile, net margin
chemical throughput. Container throughput also grew 20% yoy.    improved 2.9ppt to 34.2%, resulting a 45% yoy growth of net
                                                                earning.

Interim/quarterly Income Statement (RMB m)

FY Dec                               1H2008       2H2008         1H2009        2H2009                      1Q09          1Q10


Turnover                                745.9        840.6         752.7         925.4                     314.1         416.7
Cost of Goods Sold                    (351.9)      (536.0)        (379.6)      (546.1)                    (187.4)      (214.9)
Gross Profit                           393.9        304.7          373.1        379.3                      126.7         201.8
Other Oper. (Exp)/Inc                   (70.8)       (89.5)        (71.6)      (112.2)                     (30.0)       (-33.0)
Operating Profit                       323.2        215.1          301.5        267.1                       96.7         168.8
Other Non Opg (Exp)/Inc                   0.0           0.0           0.0           0.0                        0.0          0.0
Associates & JV Inc                    116.2           72.2          47.8          77.9                      25.4         25.5
Net Interest (Exp)/Inc                 (47.2)        (26.2)        (23.8)        (42.6)                    (13.5)        (22.0)
Exceptional Gain/(Loss)                283.5          95.2            9.0         29.7                       14.1         11.1
Pre-tax Profit                         675.7        356.3          334.5        332.1                      122.7         183.4
Tax                                    (99.2)      (110.1)         (64.1)           2.3                    (23.0)        (42.0)
Minority Interest                      (42.3)         (0.8)           1.8           2.7                      (1.4)          1.1
Net Profit                             534.2        245.4          272.2        337.1                       98.4         142.6
Net profit bef Except.                  250.7        150.2         263.2        307.4                        73.0        117.1
EBITDA                                 439.4         287.3         349.3        344.9                        N.A.          N.A.

Sales Gth (%)                              7            (4)             1          10                       N.A.           33
EBITDA Gth (%)                            11          (20)           (21)           20                      N.A.          N.A.
Opg Profit Gth                             9          (25)            (7)          24                       N.A.            75
Net Profit Gth (%)                      69.6        (17.2)         (49.0)         37.3                      N.A.          44.9
Gross Margins (%)                       52.8         36.2           49.6          41.0                      40.3          48.4
Opg Profit Margins (%)                  43.3         25.6           40.1          28.9                      30.8          40.5
Net Profit Margins (%)                  71.6         29.2           36.2          36.4                      31.3          34.2

Source: Company, DBS Vickers




                                                                                                                       Page 91
China Port Sector
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FINANCIALS – INCOME STATEMENT
                                                                                                               14% earnings CAGR for FY10 and FY11. We expect the oil
                                                                                                               business continue to drive total revenue growth in FY10 and
Growing revenue but fluctuated earnings in the past. Over
                                                                                                               FY11 at 21% p.a., mainly driven by oil segment as a result of
FY06-09, DLP’s revenue grew at 17% CAGR driven by the
                                                                                                               the continuous motorization trend and industrialization trend in
strong performance of the oil segment and container segment.
                                                                                                               China. Gross margin and operating margin are expected to be
However, net earnings fluctuated, mainly distorted by the
                                                                                                               sustainable at above 48% in FY10 and FY11, due to large
disposal gains. Excluding gains on disposal, core earnings
                                                                                                               portion of high-margin oil business.
actually decreased over FY06-FY08 period, due to the higher
portion of lower margin container business. Net profit increased                                               We expect effective tax rate will increase gradually due to the
42% yoy in FY09, aided by the 70% decrease in income tax                                                       expiry of tax holiday. However, supported by strong revenue
expenses which was attributable to the tax benefit from the net                                                growth and improved operating margin, we forecast net
loss arising from the relocation of certain oil terminal assets.                                               earnings to increase 10% to RMB668m in FY10 and 18% to
                                                                                                               RMB786m in FY11.

                                  Sales Trend                                                Operating Cost Trend                                              Profitability Trend
         RMB m
                                                                     40.0%
                                                                                      1200
                                                                                                                                                 800                                                    27%
            2,000                                                    35.0%                                                                       700
                                                                     30.0%            1000                                                                                                              17%
                                                                                                                                                 600
            1,500                                                    25.0%             800                                                       500                                                    07%
                                                                     20.0%             600                                                       400
            1,000
                                                                     15.0%                                                                       300                                                    (03%)
                                                                                       400
                 500                                                 10.0%                                                                       200
                                                                                                                                                                                                        (13%)
                                                                     5.0%              200
                                                                                                                                                 100
                   0                                                 0.0%               0                                                          0                                                    (23%)
                        2007A    2008A   2009A   2010F    2011F                              2007A    2008A     2009A         2010F    2011F           2007A   2008A       2009A      2010F     2011F
                                                                                                        Other Operating Expenses (-)                           Net Profit (After-extraordinaries)
                       Total Revenue      Revenue Growth (%) (YoY)                                      Cost of Goods Sold (-)
                                                                                                                                                               Net Profit Growth (%) (YoY)




FY Dec                                                                       2006A                   2007A                             2008A     2009A                      2010F                             2011F

Turnover                                                                     1,160                   1,570                             1,587     1,678                       1,942                         2,258
Cost of Goods Sold                                                           (575)                   (873)                              (888)    (926)                        (997)                       (1,124)
Gross Profit                                                                   585                     697                               699       752                         945                         1,134
Other Opg (Exp)/Inc                                                          (138)                   (184)                              (160)    (184)                       (153)                          (170)
Operating Profit                                                               446                     585                               538       569                         792                            964
Other Non Opg (Exp)/Inc                                                           0                       0                                 0         0                           2                              0
Associates & JV Inc                                                            194                     168                                188      126                          155                            173
Net Interest (Exp)/Inc                                                           25                    (39)                              (73)      (66)                       (134)                          (158)
Exceptional Gain/(Loss)                                                          20                      35                               379        39                           2                              0
Pre-tax Profit                                                                 685                     750                             1,032       667                         817                            979
Tax                                                                            (40)                  (119)                              (209)      (62)                       (132)                         (177)
Minority Interest                                                              (14)                    (19)                              (43)         5                        (14)                           (16)
Preference Dividend                                                               0                       0                                 0         0                           0                              0
Net Profit                                                                     632                     611                               780       609                         671                            786
Net profit before Except.                                                      611                     576                                401      571                         670                            786
EBITDA                                                                         821                   1,004                                945      953                       1,260                          1,511

Sales Gth (%)                                                                  N/A                    35.4                                 1.0      5.8                         15.7                            16.3
EBITDA Gth (%)                                                                 N/A                    22.3                               (5.9)      0.9                         32.1                            19.9
Operating Profit Gth (%)                                                       N/A                    31.1                               (8.0)      5.6                         39.3                            21.8
Net Profit Gth (%)                                                             N/A                    (3.2)                              27.5    (21.9)                         10.2                            17.1
Gross Margins (%)                                                             50.4                    44.4                               44.0     44.8                          48.6                            50.2
Opg Margins (%)                                                               38.5                    37.3                               33.9     33.9                          40.8                            42.7
Net Profit Margins (%)                                                        54.4                    38.9                               49.1      36.3                         34.6                            34.8
% of Opg Expenses to Sales                                                    11.9                      7.1                              10.1      11.0                          7.9                             7.5
Effective Tax Rate (%)                                                         5.9                    15.9                               20.3       9.3                         16.1                            18.1

Source: Company, DBS Vickers




Page 92
                                                                                                                                                         China Port Sector
                                                                                                                                                                   Dalian Port




FINANCIALS – BALANCE SHEET                                                          RMB2.5bn and a fixed interest rate of 4.28% per annum in
                                                                                    FY09. RMB1.6bn capex is planned for in FY10, which will push
5-year note secured to support mid term growth. DLP                                 net gearing ratio higher to 0.5x. This is still reasonable for DLP’s
successfully issued 5-year notes with total principal amount of                     rapid growing business.

                Breakdown of Assets                                Breakdown of Capital                              Financial Leverage & Net Debt to Equity
                                                                                                                      3,720                                                         1.9
                   Inventory -                                                                                                                                                      1.7
                                                                                                                      3,220
                                 Debtors -                                          ST Debt -                                                                                       1.5
            Bank, Cash0.2%
                                  5.7%                                                2.5%                            2,720
            and Liquid                                                                          LT Debt -                                                                           1.3
             Assets -                                                                            15.8%                                                                              1.1
              13.3%                                                                                                   2,220
                                                                                                                                                                                    0.9
                                                                                                                      1,720                                                         0.7
                                                                                                                                                                                    0.5
                                                                    Common                                            1,220
                                             Net Fixed             Shareholder                                                                                                      0.3
                                              Assets -              s' Equity -                                        720                                                          0.1
                                              80.8%                   81.6%                                                   2007A      2008A      2009A      2010F      2011F
                                                                                                                        Net Debt/(Cash)                   Net Debt to Equity (X) (R.H.S)
                                                                                                                        Financial Leverage (X) (R.H.S)




FY Dec                                                    2006A               2007A                         2008A     2009A                              2010F                         2011F

Net Fixed Assets                                           5,301                  4,700                      5,735     6,211                       7,537.0                            8,150
Invts in Assocs & JVs                                        834                  1,436                      1,845     2,101                         2,131                            2,155
Other LT Assets                                            1,032                  1,187                      1,268     1,282                         1,245                            1,209
Cash & ST Invts                                            1,413                    532                        670     1,021                           397                              291
Inventory                                                     23                     25                          8        14                            14                               16
Debtors                                                      306                    382                        487       439                           508                              591
Other Current Assets                                         423                  1,262                        174        42                            42                               42
Total Assets                                               9,332                  9,525                     10,188    11,111                       11,875                            12,454

ST Debt                                                      446                    698                        197        60                            60                               60
Other Current Liab                                           761                    608                        697       594                           608                              652
LT Debt                                                    1,962                  1,530                      1,235     3,001                         3,801                            3,801
Other LT Liabilities                                         630                    751                      1,509       699                           699                              699
Shareholder’s Equity                                       5,360                  5,776                      6,361     6,711                         6,647                            7,166
Minority Interests                                           173                    160                        190        46                            60                               76
Total Cap. & Liab.                                         9,332                  9,525                     10,188    11,111                        11,875                           12,454


 Total Debt                                              2,407.8          2,228.0                       1,431.7      3,061.0                     3,861.0                          3,861.0
 Net Cash / (Debt)                                         (995)          (1,696)                         (762)      (2,040)                     (3,464)                          (3,570)
 Net Interest Cover                                          N/A             14.9                           7.3          8.6                         5.9                              6.1

 Leverage Analysis (x)
 EBITDA Gross Interest Cover                                 7.0                  17.4                       10.8       12.8                              8.5                              9.1
 Total Debt to EBITDA                                        2.9                   2.2                        1.5        3.2                              3.1                              2.6
 Total Debt to Total Assets                                  0.3                   0.2                        0.1        0.3                              0.3                              0.3
 Total Debt to Capital                                       0.4                   0.4                        0.2        0.5                              0.6                              0.5
 Net Debt to Equity                                          0.2                   0.3                        0.1        0.3                              0.5                              0.5
 Capex to Debt                                               0.6                   0.4                        0.6        0.3                              0.4                              0.2

 Liquidity Analysis (x)
 Cash Ratio                                                  1.2                   0.4                        0.7         1.6                             0.6                              0.4
 Current Ratio                                               1.8                   1.7                        1.5         2.3                             1.4                              1.3
 Quick Ratio                                                 1.4                   0.7                        1.3         2.2                             1.4                              1.2

Source: Company, DBS Vickers




                                                                                                                                                                                   Page 93
China Port Sector
Dalian Port




FINANCIALS – CASH FLOW
                                                                                                                   Consistent dividend payout. DLP’s normal dividend payout ratio
                                                                                                                   is at least 30%. In FY10, management has declared to pay out a
Healthy operating cash flow. Led by its strong revenue and
                                                                                                                   total of RMB732m this year, as it returns the accumulated
earning growth, we project its operating cash flow to increase
                                                                                                                   profits to the existing H-shareholders ahead of the pending
in FY10 and FY11. Cash position is expected to strengthen after
                                                                                                                   listing in A-share market. Management also indicated that it will
A-share IPO. The A-share listing will enable DLP to acquire dry
                                                                                                                   pay a special dividned if its A-share IPO is delayed to 2H10. For
bulk assets from its parent as well as also obtain funds to
                                                                                                                   FY10 and FY11, we expect 40% for its normal dividend payout
support the large capex required for its long term development
                                                                                                                   ratio.
plan.

Large capex in FY10. Management plans RMB1.6bn capex this
year, of which 70% will be invested in the oil segment’s new oil
terminal and new oil tanks.

                       Cash Flow Trend                                                  Free Cash Flow Per Share                                                   Free Cash Flow As At Year End
                                                                                0.45
          1,115
                                                                                0.35                                                                         180
            615                                                                 0.25                                                                         160
                                                                                                                                                             140
            115                                                                 0.15
                                                                                                                                                             120
           -385                                                                 0.05                                                                         100
           -885                                                                (0.05)                                                                        80
                                                                                                                                                             60
          -1,385                                                               (0.15)
                                                                                                                                                             40
          -1,885                                                               (0.25)                                                                        20
                   2007A    2008A     2009A     2010F        2011F                      2007A       2008A          2009A      2010F        2011F

                   CF from Op   CF from Invt   CF from Fin                              Free Cash Flow Per Share    Free Operating Cash Flow Per Share
                                                                                                                                                                     2007A   2008A     2009A   2010F   2011F




FY Dec                                                               2006A              2007A                               2008A                        2009A                       2010F                     2011F

Pre-Tax Profit                                                          685                  750                              1,032                         667                        813                       979
Dep. & Amort.                                                           181                  250                                218                         259                         311                      373
Tax Paid                                                                (31)               (109)                               (178)                      (149)                       (132)                     (177)
Assoc. & JV Inc/(loss)                                                (194)                (168)                              (188)                       (126)                       (155)                     (173)
Chg in Wkg.Cap.                                                         119                 177                                  12                           2                        (56)                      (40)
Other Operating CF                                                      119                  (36)                                 96                          9                         148                      165
Net Operating CF                                                       868                  834                                 561                        672                         930                     1,127

Capital Exp.(net)                                                (1,348)                  (834)                                (879)                      (885)                      (1,600)                   (950)
Other Invts.(net)                                                    (49)                   (75)                              1,207                           (9)                          0                       0
Invts in Assoc. & JV                                                 (95)                 (540)                               (472)                       (149)                            0                       0
Div from Assoc & JV                                                    90                   183                                 174                         156                          126                     149
Other Investing CF                                                      0                     0                                   0                         (43)                           0                       0
Net Investing CF                                                 (1,402)                (1,266)                                  30                       (930)                      (1,474)                   (801)

Div Paid                                                                   0               (176)                               (234)                      (263)                       (732)                    (267)
Chg in Gross Debt                                                    (1,415)               (180)                               (831)                       876                          800                        0
Capital Issues                                                         2,385                    0                                  0                          0                           0                        0
Other Financing CF                                                       718                 (92)                                611                        (4)                       (148)                    (165)
Net Financing CF                                                      1,688                (448)                               (454)                       608                         (80)                    (432)

Net Cashflow                                                          1,154                (880)                                138                        351                         (624)                   (106)
Opg CFPS (RMB cts)                                                     28.7                 22.5                               18.8                       22.9                          33.7                    39.9
Free CFPS (RMB cts)                                                   (18.3)                 0.0                              (10.8)                      (7.3)                       (22.9)                     6.1

Source: Company, DBS Vickers




Page 94
                                                                                                                                                                        China Port Sector
                                                                                                                                                                                         Dalian Port




FINANCIALS – ROE DRIVERS

Lower net margin as factored in higher tax rate. Gross margin                                             Improved return as higher asset turnover. As a mix result of
and operating margin are expected to improve and stay above                                               stable financial leverage, improved asset turnover and decreased
48% in FY10 and FY11, due to a larger portion of high-margin                                              net profit margin, ROAE is forecast to climb from 9.3% by FY09
oil business. However, net margin is expected to fall as we tax                                           to 11.4% by FY11, which is the highest among peers.
rates start to normalize.

                 ROAE / ROAA Trend (%)                                                       Margin Trend (%)                                 Total Debt & Gross Interest Cover
         14.0%                                                                 70%
         13.0%                                                                 65%                                                          4000
                                                                                                                                                                                                                  10.5x
         12.0%                                                                                                                              3500
                                                                               60%                                                                                                                                9.5x
         11.0%                                                                                                                              3000
                                                                               55%
         10.0%                                                                                                                              2500                                                                  8.5x
                                                                               50%
         9.0%                                                                                                                               2000                                                                  7.5x
         8.0%                                                                  45%
                                                                                                                                            1500
                                                                               40%                                                                                                                                6.5x
         7.0%                                                                                                                               1000
         6.0%                                                                  35%                                                                                                                                5.5x
                                                                                                                                             500
         5.0%                                                                  30%                                                            0                                                                   4.5x
                 2007A      2008A       2009A    2010F      2011F                    2007A        2008A    2009A     2010F     2011F               2007A   2008A        2009A          2010F          2011F
           Ret on Avg Equity (ROAE) %     Ret on Avg Assets (ROAA) %            EBITDA Margin %     EBIT Margin %   Net Income Margin %                      Total Debt (+)     Gross Interest Cover (X) (YoY)




FY Dec                                                                 2006A              2007A                         2008A             2009A                       2010F                                       2011F

Profitability Ratios
Sales Growth (%)                                                         N/A                  35.4                             1.0           5.8                        15.7                                        16.3
Gross Margin (%)                                                        50.4                  44.4                            44.0         44.8                         48.6                                        50.2
Operating Margin (%)                                                    38.5                  37.3                            33.9         33.9                         40.8                                        42.7
Net Profit Margin (%)                                                   54.4                  38.9                            49.1         36.3                         34.6                                        34.8
Financial Leverage (x)                                                 168.7                 160.4                           155.5        164.4                        177.0                                       172.0
Tax Retention Rate (%)                                                  94.1                  84.1                            79.7         90.7                         83.9                                        81.9
Sustainable Growth (%)                                                   N/A                   6.8                             8.5         (1.9)                         6.1                                         6.8
ROAE (%)                                                                 N/A                  11.0                            12.8           9.3                        10.1                                        11.4
ROA (%)                                                                  N/A                   6.5                             7.9          5.7                          5.8                                         6.5
ROCE (%)                                                                 N/A                   5.6                             4.7          5.2                          6.1                                         6.8

Activity Ratios
Debtors Turn (average days)                                              N/A                  80.0                           100.0        100.8                         89.1                                        88.9
Creditors Turn (average days)                                            N/A                 253.8                           224.1        247.5                        246.7                                       239.5
Inventory Turn (average days)                                            N/A                  14.1                             8.9          5.9                          7.5                                         7.3
Total Asset Turnover (x)                                                 N/A                   0.2                             0.2          0.2                          0.2                                         0.2
Fixed Asset Turnover (x)                                                 N/A                   0.3                             0.3          0.3                          0.3                                         0.3
Asset Replacement Ratio (x)                                              7.6                   3.4                             4.3          3.6                          5.4                                         2.7

Source: Company, DBS Vickers




                                                                                                                                                                                                                 Page 95
China Port Sector
Dalian Port



VALUATION

                                                                        highest ROAE among its peers, its current price is attractive. It
Maintain BUY call, TP HK$4.18. We maintain a BUY call on
                                                                        is also a defensive play with limited downside risks. As its main
DLP with target price of HK$4.18 using SOTP valuation
                                                                        business is imported crude oil, impact on DLP will be
method. This implies 16.0x forward earnings and 1.6x forward
                                                                        insignificant or it may even benefit from the RMB appreciation.
BVPS, with over 20% upside from current market price. The
1.6x PB ratio is still less than its historic 1.8x average. With the


SOTP Valuation

                                                                   Value/share
                                             Value (RMB m)         (HK$/share)                                             Comments
 Oil terminal & storage                                9,931              3.87                 DCF, WACC 8.5%, terminal growth 3%
 Container terminal & logistics                        1,953              0.76                 DCF, WACC 8.5%, terminal growth 3%
 Port related & others                                 1,190              0.46                                   10x forward earnings
 Auto terminal                                           274              0.11                                                   Costs
 AFS investments                                         143              0.06                                        FY09 book value
 Net cash                                             -2,771             -1.08              FY09 book value minus declared dividends
 Total                                               10,720               4.18

 No of shares (m)                                      2,926
 Exchange rate (RMB/HK$)                                1.15

Source: Bloomberg, exchange rate @ Jul 14, 2010, DBS Vickers



Peak valuation in FY07 following its mass assets acquisition.
                                                                        Mean, Median, Max and Mix for DLP’s PE and PB ratios
DLP has historically traded between 4.7x-34.9x eanrings and
0.6x-3.7x book values since its listing on HKEx in Apr2006.                                     PE             PB
Valuation peaked at 34.9x PE and 3.7x PB in Oct-07 due to                Max                  34.9            3.7
massive asset acquisitions and the surge in the HK stock                 Min                    4.7           0.6
market. Currently it is trading at 10.4x FY10F earnings or 1.2x          Median               14.7            1.8
prospective P/BV, which is lower than the average of 16.1x PE            Mean                 16.1            1.8
and 1.8x PB.
                                                                        Source: Bloomberg, DBS Vickers




Page 96
                                                                                                                                                                                                                                                                    China Port Sector
                                                                                                                                                                                                                                                                               Dalian Port

PE chart                                                                                                                                         PB chart


 x                                                                                                                                                x
 40                                                                                                                                               4.0
 35                                                                                                                                               3.5
 30                                                                                                                                               3.0
 25                                                                                                                                               2.5
 20                                                                                                                                               2.0
 15                                                                                                                                               1.5
 10                                                                                                                                               1.0
  5                                                                                                                                               0.5
  0                                                                                                                                               0.0
                  Aug-06




                                                    Aug-07




                                                                                 Aug-08




                                                                                                                   Aug-09




                                                                                                                                                                    Aug-06




                                                                                                                                                                                                       Aug-07




                                                                                                                                                                                                                                    Aug-08




                                                                                                                                                                                                                                                                      Aug-09
        Apr-06


                           Dec-06
                                      Apr-07


                                                               Dec-07
                                                                        Apr-08


                                                                                              Dec-08
                                                                                                          Apr-09


                                                                                                                            Dec-09
                                                                                                                                        Apr-10




                                                                                                                                                           Apr-06


                                                                                                                                                                             Dec-06
                                                                                                                                                                                         Apr-07


                                                                                                                                                                                                                 Dec-07
                                                                                                                                                                                                                          Apr-08


                                                                                                                                                                                                                                                  Dec-08
                                                                                                                                                                                                                                                             Apr-09


                                                                                                                                                                                                                                                                               Dec-09
                                                                                                                                                                                                                                                                                            Apr-10
Source: Bloomberg, DBS Vickers                                                                                                                   Source: Bloomberg, DBS Vickers




PE band chart                                                                                                                                    PB band chart


 Share Price (HK$)                                                                                                                                Share Price (HK$)
 9                                                                                                                                                10                                                                                                                                    3.3x
 8                                                                                                                                                 9
 7                                                                                                                                      28x        8
                                                                                                                                                   7                                                                                                                                        2.6x
 6
                                                                                                                                        22x        6
 5                                                                                                                                                                                                                                                                                          1.9x
                                                                                                                                        16x        5
 4
                                                                                                                                                   4
 3                                                                                                                                      11x        3                                                                                                                                    1.2x
 2                                                                                                                                                 2
 1                                                                                                                                       5x                                                                                                                                                 0.5x
                                                                                                                                                   1
 0                                                                                                                                                 0
                 Sep-06

                             Feb-07




                                                             Dec-07




                                                                                                                                                                    Sep-06

                                                                                                                                                                                Feb-07



                                                                                                                                                                                                                Dec-07
   Apr-06




                                                                        May-08

                                                                                     Oct-08

                                                                                                       Mar-09




                                                                                                                                                        Apr-06




                                                                                                                                                                                                                           May-08

                                                                                                                                                                                                                                         Oct-08

                                                                                                                                                                                                                                                           Mar-09
                                           Jul-07




                                                                                                                   Aug-09

                                                                                                                               Jan-10




                                                                                                                                                                                                  Jul-07




                                                                                                                                                                                                                                                                      Aug-09

                                                                                                                                                                                                                                                                                   Jan-10




Source: Bloomberg, DBS Vickers                                                                                                                   Source: Bloomberg, DBS Vickers




                                                                                                                                                                                                                                                                                                     Page 97
China Port Sector
Dalian Port
                                                                         Potential re-rating driven by A-share listing. A-share usually
Minimal dilution effect expected. As the acquisition target
                                                                         has a higher valuation than H-share. Currently, DLP is trading
assets were historically less profitable as compared to DLP’s
                                                                         at 13.5x trailing PE, while A-share bulk and oil port operators
current assets, which brought concerns on EPS dilution. DLP
                                                                         are trading at trailing PE ranging from 16.9x to 78.4x, with
has indicated A-share IPO price will not be lower than H-share
                                                                         average of 38.8x. The newly A-share IPO – Tangshan port
price. Using DLP’s current RMB3.01/share (HK$3.45/share,
                                                                         (601000.CH, ore and bulk focused port operator in Hebei
HK$/RMB=0.87) trading in H-share market and assuming the
                                                                         Province) is priced at RMB8.20/share, representing 32.7x
same earning in 2H09 as in 1H09, DLP’s FY09 earning may be
                                                                         trailing PE (diluted).
diluted by 6.5%. However, we expect that the target assets’
performance in 2H09 was much better than 1H09, which was
                                                                         It is highly possible that DLP’s A-share IPO price is much higher
the situation experienced by other domestic ports. Thus, the
                                                                         than the current H-share price. We assume an RMB4.00/share
EPS dilution effect should be minimal or could even be anti-
                                                                         A-share IPO price, 33% premium over DLP’s current price in
dilutive. In addition, the bulk terminal is expected to
                                                                         H-share market (or 25% discount of H-share to A-share, while
experience high growth due to China’s growing appetite for
                                                                         the average discount of H-share to A-share is 27%). This
imported raw materials.
                                                                         implies 19.3x trailing PE of enlarged DLP, which is at the low
                                                                         end of PE range of A-share peers. The proposed A-share IPO is
EPS dilution by the assets acquisition FY09                              expected to add HK$0.15/share to our current fair value.

                   Target assets earnings FY09 (RMB m)
                         102           122       142     162     182
 A-IPO      3.00       -12%           -9%       -7%     -4%     -2%
 price      3.50        -8%           -6%       -3%     -1%      2%
 (RMB/      4.00        -6%           -3%       -1%      2%      5%
 share)
            4.50        -4%           -1%       2%       4%      7%
            5.00        -2%           1%        3%       6%      9%

Source: Company, DBS Vickers




EPS dilution by the assets acquisition and A-IPO                       Fair value after A-share IPO

 (RMB)                         FY06          FY07      FY08    FY09E                                        Fair value     Corresponding
                                                                                                             (RMB m)        no. of shares
 EPS of existing               0.22          0.21      0.27     0.21
 assets                                                                 Existing assets                         10,720              2,926
 EPS after the                 0.18          0.18      0.23     0.21    Target assets                            2,805                701
 acquisition
                                                                        Fund raised from A-IPO                   4,800              1,200
 EPS dilution after        -14%              -16%      -12%     -1%
 the acquisition                                                                                                18,325              4,827
 EPS after the                 0.14          0.13      0.18     0.16
 acquisition & A-IPO                                                    Fair value per share (HK$)                4.33
 EPS dilution after        -36%              -37%      -34%    -25%
 the acquisition &
 A-IPO

Assuming a RMB4.00/share A-share IPO price and the same Source: Company, DBS Vickers
earning of target assets in 2H09 as in 1H09
Source: Company, DBS Vickers




Page 98
                                                                                                                  China Port Sector
                                                                                                                          Dalian Port

Peers Valuation Table

                                              Cur                              PE                   ROE                     PB
                                             Mkt
                                                           Px
 Company                         Ticker       Cap                 PEG
                                                          Last          09Y    10Y    11Y    09Y    10Y    11Y     09Y      10Y     11Y
                                             (US$
                                              m)
 H-share ports ^                                                  0.8   16.5   14.5   12.8    7.8    9.4    9.3     1.2     1.2      1.2
 China Merchants Holdings         144.HK      8,360       26.70   1.1   20.1   19.5   16.7   10.1    9.7   10.7     1.9     1.8      1.7
 COSCO Pacific                   1199.HK      3,419        9.80   0.3   16.5    9.6   11.0    6.5   10.6    8.5     1.0     0.9      0.9
 Dalian Port PDA                 2880.HK      1,216        3.23   0.9   13.5   12.3   10.5    9.3   10.0   11.4     1.2     1.2      1.1
 Xiamen Int'l Port               3378.HK        488        1.39   0.8   16.1   13.3   12.0    5.4    6.3    6.7     0.9     0.8      0.8
 Tianjin Port Dev                3382.HK      1,355        1.71   NA     NA    17.7   14.1    NA    10.5    9.3     0.9     1.4      1.3
 A-share container ports                                          NA    20.7   18.9   17.2   12.7   12.3   12.8     2.6     2.4      2.3
 Shenzhen Chiwan Wharf         000022.CH      1,115       12.19   NA    17.7   15.5   13.9   15.4   16.5   16.7     2.7     2.5      2.3
 Shenzhen Yantian Port         000088.CH      1,154        6.28   NA    17.5   17.0   15.8   11.0    9.9    9.6     1.9     1.7      1.8
 Shanghai Int'l Port Group     600018.CH     12,115        3.91   NA    21.5   18.7   17.5   11.7   13.0   13.3     2.6     2.4      2.2
 A-share bulk ports                                               NA    38.8   24.8   20.7    7.9    9.3   10.4     2.4     2.2      1.9
 Tianjin Port                  600717.CH      2,015        8.15   NA    16.9   16.2   13.8    8.0    7.4    8.0     1.4     1.3     1.3
 Rizhao Port                   600017.CH      1,235        5.54   NA    22.4   16.8   14.4    9.1   12.2   13.0     2.0     1.8     1.7
 Jiangsu Lianyungang Port      601008.CH        443        5.58   NA    31.9   22.3   18.2    5.7    7.4    9.4     1.9     1.6     1.5
 Xiamen Port Development       000905.CH        567        7.24   NA    38.1    NA     NA     NA     NA     NA      NA      NA      NA
 Beihai Beihai Port            000582.CH        228       10.89   NA     NA     NA     NA     NA     NA     NA      NA      NA      NA
 Yingkou Port Liability        600317.CH        975        6.02   NA    31.5   29.1   24.8    6.2    6.3    7.8     2.0     1.8     1.8
 Nanjing Port                  002040.CH        278        7.65   NA     NA     NA     NA     NA     NA     NA      NA      NA      NA
 Chongqing Gangjiu             600279.CH        372       11.02   NA    61.2   38.7   31.9    NA     NA     NA      NA      3.1     NA
 Wuhu Port                     600575.CH        832       15.84   NA    78.4   20.8   18.1   10.6   13.4   13.7     4.5     3.2     3.1
 Jinzhou Port                  600190.CH      1,025        4.71   NA    30.0   29.4   23.6    NA     NA     NA      NA      NA      NA
 Tangshan Port                 600100.CH      1,154         7.8   0.7    NA    23.4   18.1    NA    10.1   12.4     NA      2.1     1.9

Source: Bloomberg closing @ Jul 14, 2010, ^ DBS Vickers




                                                                                                                                  Page 99
China Port Sector
Dalian Port

Appendix 1: Key Management Team
Manager                Current                                                                                      Previous Experience
                  Appointment
Sun Hong           Chairman &                                                             Joined Port of Dalian Authority in 1984.
(47)                 Executive Has over 25 years of experience in managing port business and extensive experience in business and
                      Director                                                                                     management.
                                    Currently a director and the general manager of PDA Crop, and also serves as the chairman of the
                                     board of DPC, Dalian International Logistics Park Development Co., Ltd., Dalian Port Jifa Logistics
                                                                                                Co., Ltd. and Dalian Portnet Co., Ltd.
                                                                          A representative to the Eleventh National People’s Congress.
                                      Obtained a master of business administration degree from the State University of New York at
                                     Buffalo in the U.S. and a bachelor’s degree from the college of electronics engineering of Dalian
                                                               Maritime University majoring in shipping wireless telecommunications.
                                            Obtained a master’s degree in port management from the Antwerp Port Engineering and
                                                                                                    Consulting Centre in Belgium.
                                                                                                             Senior economist<where>.

Zhang Fengge         Executive                                                             Joined Port of Dalian Authority in 1972.
(56)                  Director Has nearly 40 years of experience in port business and extensive experience in finance and financial
                                                                                                                     management.
                                    Currently a deputy general manager and the chief accountant of PDA Corp. and also serves as the
                                               chairman of the supervisory committee of Dalian China Oil Dock Management Co., Ltd.
                                        Graduated from the faculty of water transport management of Shanghai Maritime University
                                  majoring in water transport finance and accounting and a master’s degree course in accountancy at
                                                                                  the Dongbei University of Finance and Economics.
                                                                                A professor researcher and senior accountant<where>.

Jiang Luning         Executive                                                             Joined Port of Dalian Authority in 1984.
(47)              Director and Has nearly twenty-five years of practical experience in port planning, construction and operations,
                   the general as well as the management of international finance projects and Sino-foreign joint venture projects
                      manager     and extensive experience in many aspects such as corporate operation, management and capital
                                                                                                                       operations.
                                   Currently serves as the chairman of DPC, DCT and Dalian Automobile Terminal Co., Ltd, the deputy
                                  chairman of DICT and a director of Dalian Ocean Shipping Tally Co., Ltd. and China United Tally Co.,
                                                                                                              Ltd. Dalian respectively.
                                         Completed a Beijing international master of business administration programme at Peking
                                        University, obtained a master’s degree from Fordham University in U.S. and graduated from
                                    Shanghai Maritime University with a bachelor’s degree in water transportation management and
                                                                                                                      engineering.
                                                                                                                    A senior economist.

Su Chunhua           Executive                                                                 Joined Port of Dalian Authority in 1988.
(47)              Director and       Currently a director of Dalian Port Jifa Logistics Co., Ltd., DPC, DCT, DPCT and Dalian Automobile
                      the chief                                                                                        Terminal Co., Ltd.
                   accountant
                                                 Also acts as a supervisor of DICT and China United Tally Col., Ltd. Dalian respectively.
                                      Serves as a member and deputy secretary general of the third standing committee of the Dalian
                                                                                              Association of Chief Financial Officers.
                                       Graduated from Dalian Maritime University with a master’s degree in engineering, majoring in
                                  transportation planning and management, and from the faculty of water transport management of
                                    Shanghai Maritime University with a bachelor’s degree in water transport finance and accounting,
                                                                                                              majoring in economics.
                                                                                                                   A senior accountant.
Source: Company




Page 100
                                                                                                                        China Port Sector
                                                                                                                                    Dalian Port

Appendix 2: Layout of Dalian Hub


 Terminals of the
 Company & PDA

                                                                            Automobile


                    Dalian Bay Passengers                                                                    North Coast of Dayao

                                 Dalian Bay General



                                                                                                                       Bulk Grain
                                                                      Container




                                    Ganjingzi General
                                                                                                                  Oil/Liquefied
                                       Heizuizi General Cargo

                                            Dagang Area Passengers                                      Ore Terminal




                                                      Dagang Area General




                                                                 Terminal held by PDA (Target assets)

                                                                 Terminal held by DLP



Source: Company




                                                                                                                                        Page 101
China Port Sector
Dalian Port


 Appendix 3: Liaoning Costal Economic Belt Planning




                         Jinzhou

                                   Panjing

            Huludao
                                                     Dandong
                                            Yinkou



                                   Dalian

            Bohai Bay




 Source: NDRC Liaoning




Page 102
                                                                                                                                 China Port Sector
                                                                                                                                              Dalian Port
Income Statement (RMB m)                                                    Balance Sheet (RMB m)
FY Dec                          2008A      2009A       2010F      2011F     FY Dec                         2008A            2009A            2010F          2011F
Turnover                         1,587      1,678      1,942      2,258     Net Fixed Assets                5,735           6,211             7,537         8,150
Cost of Goods Sold                (888)      (926)      (997)    (1,124)    Invts in Assocs & JVs           1,845           2,101             2,131         2,155
Gross Profit                       699        752        945      1,134     Other LT Assets                 1,268           1,282             1,245         1,209
Other Opg (Exp)/Inc               (160)      (184)      (153)      (170)    Cash & ST Invts                   670           1,021               397           291
Operating Profit                   538        569        792        964     Inventory                           8              14                14            16
Other Non Opg (Exp)/Inc               0         0           2          0    Debtors                           487             439               508           591
Associates & JV Inc                188        126        155        173     Other Current Assets              174              42                42            42
Net Interest (Exp)/Inc             (73)       (66)     (134)       (158)    Total Assets                   10,188          11,111            11,875        12,454
Exceptional Gain/(Loss)             379        39           2          0
Pre-tax Profit                   1,032        667        817        979     ST Debt                           197              60                60            60
Tax                              (209)        (62)     (132)       (177)    Other Current Liab                697             594               608           652
Minority Interest                   (43)         5        (14)       (16)   LT Debt                         1,235           3,001             3,801         3,801
Preference Dividend                   0          0          0          0    Other LT Liabilities            1,509             699               699           699
Net Profit                         780        609        671        786     Shareholder’s Equity            6,361           6,711             6,647         7,166
Net profit before Except.          401        571        670         786    Minority Interests                190              46                60            76
                                                                            Total Cap. & Liab.             10,188          11,111            11,875        12,454
EBITDA                             945        953      1,260      1,511
Sales Gth (%)                      1.0         5.8      15.7       16.3     Non-Cash Wkg. Cap                    (28)          (99)              (43)           (3)
EBITDA Gth (%)                    (5.9)        0.9      32.1       19.9     Net Cash/(Debt)                     (762)      (2,040)           (3,464)       (3,570)
Opg Profit Gth (%)                (8.0)        5.6      39.3       21.8
Effective Tax Rate (%)            20.3        9.3       16.1       18.1
Cash Flow Statement (RMB m)                                                 Rates & Ratios
FY Dec                          2008A      2009A       2010F      2011F     FY Dec                         2008A            2009A            2010F          2011F
Pre-Tax Profit                   1,032         667        813        979    Gross Margin (%)                  44.0            44.8              48.6         50.2
Dep. & Amort.                      218         259        311        373    Opg Profit Margin (%)             33.9            33.9             40.8          42.7
Tax Paid                         (178)       (149)      (132)     (177)     Net Profit Margin (%)            49.1            36.3              34.6          34.8
(Pft)/ Loss on disposal of FAs   (430)          11          0          0    ROAE (%)                         12.8              9.3             10.1          11.4
Assoc. & JV Inc/(loss)           (188)       (126)      (155)      (173)    ROA (%)                            7.9             5.7               5.8          6.5
Non-Cash Wkg.Cap.                    12          2        (56)       (40)   ROCE (%)                           4.7             5.2               6.1          6.8
Other Operating CF                   96          9       148        165     Div Payout Ratio (%)             33.8           120.1              39.8          40.0
Net Operating CF                   561        672        930      1,127     Interest Cover (x)                 7.3             8.6               5.9          6.1
Capital Exp.(net)                (879)       (885)    (1,600)      (950)    Asset Turnover (x)                 0.2             0.2               0.2           0.2
Other Invts.(net)                1,207          (9)          0          0   Debtors Turn (days)             100.0           100.8               89.1         88.9
Invts in Assoc. & JV              (472)      (149)           0          0   Creditors Turn (days)           224.1           247.5             246.7         239.5
Div from Assoc & JV                 174        156        126        149    Inventory Turn (days)              8.9             5.9               7.5           7.3
Other Investing CF                    0        (43)          0          0   Current Ratio (x)                  1.5             2.3               1.4           1.3
Net Investing CF                     30      (930)    (1,474)     (801)     Quick Ratio (x)                    1.3             2.2               1.4          1.2
Div Paid                         (234)       (263)      (732)      (267)    Net Debt/Equity (X)                0.1             0.3               0.5          0.5
Chg in Gross Debt                (831)         876       800           0    Capex to Debt (%)                61.4            28.9              41.4          24.6
Capital Issues                        0          0          0          0    Z-Score (X)                     CASH            CASH              CASH          CASH
Other Financing CF                 611          (4)     (148)      (165)    N.Cash/(Debt)PS (RMB)            (0.3)           (0.8)             (1.4)         (1.4)
Net Financing CF                 (454)        608        (80)     (432)     Opg CFPS (RMB)                   0.22            0.26              0.39          0.46
Net Cashflow                       138         351      (624)      (106)    Free CFPS (RMB)                 (0.12)          (0.08)            (0.26)         0.07
Interim Income Statement (RMB m)                                            Segmental Breakdown (RMB m)
FY Dec                         1H2008      2H2008     1H2009     2H2009     FY Dec                                  2008A       2009A           2010F       2011F
Turnover                            746        841        753        925    Revenues
Cost of Goods Sold                (352)      (536)      (380)      (546)     Oil/liquefied chemicals terminal            670          906       1,092       1,324
Gross Profit                       394        305        373        379     and logistics
Other Oper. (Exp)/Inc               (71)       (90)       (72)     (112)     Container terminal and logistics             573      384            423         465
Operating Profit                   323        215        302        267      Port value-added                             339      385            423         466
Other Non Opg (Exp)/Inc               0          0          0          0     Others                                         5        3              4           4
Associates & JV Inc                116          72         48         78    Total                                       1,587    1,678          1,942       2,258
Net Interest (Exp)/Inc              (47)       (26)       (24)       (43)   Gross Profit
Exceptional Gain/(Loss)             284         95          9         30     Oil/liquefied chemicals terminal            378          478          612        768
Pre-tax Profit                     676        356        335        332     and logistics
Tax                                 (99)     (110)        (64)         2     Container terminal and logistics            163           92         118         130
Minority Interest                   (42)        (1)         2          3     Port value-added                            154          187         212         233
Net Profit                         534        245        272        337      Others                                        5           (4)          3           3
Net profit bef Except.              251        150        263        307    Total                                        699          752         945       1,134
EBITDA                              439        287        349        345    Gross Profit Margins
                                                                             Oil/liquefied chemicals terminal            56.4     52.7            56.0       58.0
Sales Gth (%)                      7.3        (3.9)      0.9       10.1     and logistics
EBITDA Gth (%)                    11.3      (19.9)     (20.5)      20.1      Container terminal and logistics            28.4     23.9            28.0       28.0
Opg Profit Gth                     8.8      (25.3)      (6.7)      24.1      Port value-added                            45.4     48.6            50.0       50.0
Net Profit Gth (%)                69.6      (17.2)     (49.0)      37.3      Others                                      88.2   (117.8)           80.0       80.0
Gross Margins (%)                 52.8        36.2      49.6       41.0     Total                                        44.0     44.8            48.6       50.2
Opg Profit Margins (%)            43.3        25.6      40.1       28.9
Net Profit Margins (%)            71.6        29.2      36.2       36.4




                                                                                                                                                         Page 103
China Port Sector
Xiamen Int’l Port
Bloomberg: 3378 HK EQUITY | Reuters: 3378.HK




HOLD HK$1.39 HSI : 20,561                                                                      Not quite ready for docking yet
(Initiate coverage)
Price Target : 12-Month HK$1.56
                                                                                               •    Direct beneficiary of cross-strait economic pact and
Potential Catalyst: Higher cross-straits trade
                                                                                                    construction of economic zone in Fujian
Analyst                                                                                        •    However, increasing competition is likely to erode its
Ken He +86 21 6888 3375
ken_he@hk.dbsvickers.com                                                                            leading position, and ROE lags behind its peers
                                                                                               •    Initiate coverage with HOLD rating and HK$1.56 TP
Paul YONG CFA +8621 6888 3372
paulyong@dbsvickers.com
                                                                                               Leading port operator in Fujian. Xiamen International Port
                                                                                               (XIP) operates domestic container, bulk cargo, ancillary value-
Price Relative                                                                                 added port services and other businesses in the Xiamen hub.
          HK$

       3.50
                                                                     Relative Index

                                                                                217
                                                                                               The long-awaited cross-Strait economic pact that was signed
       3.00
                                                                                197            in June 2010 should boost cargo flows between Xiamen and
                                                                                177
       2.50                                                                     157            Kaohsiung, being the largest port on each side of the strait.
                                                                                               Also, the accelerated development of the economic zone in
                                                                                137
       2.00
                                                                                117
       1.50                                                                     97
                                                                                77
                                                                                               Fujian, which aims to support industrial cooperation between
                                                                                               Fujian and Taiwan, should benefit XIP.
       1.00
                                                                                57
       0.50                                                                  37
          2006             2007            2008               2009        2010


          Xiamen Int'l Port (LHS)                    Relative HSI INDEX (RHS)
                                                                                               Improved rail connection to expand hinterland. Through
                                                                                               the construction of land-base port and improved rail
Forecasts and Valuation                                                                        connection, XIP has expanded its hinterland coverage to
                                                                                               Jiangxi, Hunan, and east Guangdong provinces. This should
FY Dec (RMB m)                          2008A          2009A         2010F           2011F     also help extend and expand its revenue stream.
Turnover                                  3,412            2,066     2,303            2,492
EBITDA                                      705               536      622              697    Growing competition from terminal operators in the
Pre-tax Profit                              502               311      385              443    Xiamen hub. Two new terminals established by the XIP’s
Net Profit                                  377               205      248              275
Net Pft (Pre Ex.)                           377               205      248              275
                                                                                               customers and the Haicang district government will add over
EPS (RMB)                                  0.14              0.08     0.09             0.10    40% of the current container handling capacity in Xiamen in
EPS (HK$)                                  0.16              0.09     0.10             0.12    2011 and take some business away from XIP.
EPS Gth (%)                                  0.6           (45.5)     20.7             11.1
Diluted EPS (HK$)                          0.16             0.09      0.10             0.12
DPS (HK$)                                  0.06              0.06     0.03             0.03    Initiate with a HOLD, TP HK$1.56. Whilst we project XIP’s
BV Per Share (HK$)                         1.58              1.63     1.68             1.76    earnings will grow at a CAGR of 16% over FY09- FY11F, its
PE (X)                                       8.8             16.1     13.3             12.0    ROE would still be the lowest among its peers and given our
P/Cash Flow (X)                              5.8               8.0      6.9              6.2
EV/EBITDA (X)                                5.5               6.8      5.8              5.0
                                                                                               concerns over increasing competition, we rate XIP a HOLD
P/Free CF (X)                               7.0              10.6     13.9             11.7    with TP HK$1.56. This SOTP valuation translates to 0.9x
Net Div Yield (%)                           4.5               4.1      2.2              2.5    FY10F P/BV, against <7% ROE, and 17.2x FY10F P/E.
P/Book Value (X)                             0.9              0.9      0.8              0.8
Net Debt/Equity (X)                       CASH             CASH      CASH             CASH     At A Glance
ROAE (%)                                   10.3                5.4     6.3               6.7   Issued Capital - H shares (m shs)                      987
                                                                                                                - Non H shrs (m shs)               1,740
Earnings Rev (%):                                                      New             New     H shs as a % of Total                                   36
Consensus EPS (HK$):                                                   0.11            0.12    H Mkt. Cap (HK$m/US$m)                         1,372 / 177
                                                                                               Major Shareholders
ICB Industry: Industrials                                                                           Xiamen Port Holding (%)                         62.5
ICB Sector: Industrial Transportation                                                          Major H Shareholders (%)
Principal Business: Terminal operator in Xiamen port hub, providing                                 China Shipping (Group) Co. (%)                   8.0
container and general cargo loading, shipping agency, tallying,                                     Merrill Lynch & Co Inc (%)                       5.9
berthing and unberthing, and other port related services, as well as                                Blackrock, Inc. (%)                               5.4
building materials manufacturing.                                                              H Shares-Free Float (%)                              80.7
                                                                                               Avg. Daily Vol.(‘000)                               1,825
Source of all data: Company, DBSV, Bloomberg, HKEX




Page 104
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-SGC / sa-DC
                                                                                                              China Port Sector
                                                                                                              Xiamen Int’l Port




THE BUSINESS MODEL
                                                                   Leading position in Fujian province. At end-2009, XIP owned
                                                                   and operated 16 berths with designed throughput capacity of
Deep sea port operator in South-Eastern China. Xiamen
                                                                   3.0mn TEU containers and 3.2mn mt of bulk/general cargo in
International Port (XIP) is the largest port terminal operator in
                                                                   the Dongdu and Haicang area. It captured 65% and 43%
Xiamen, Fujian province. XIP is involved in container and general
                                                                   market share in Xiamen and Fujian province, respectively, in
cargo handling, ancillary value-added port services, manufacture
                                                                   terms of total containers handled in 2009.
and sale of building materials, and trading of industrial products
in Xiamen, which has a natural deep-water harbour in its           Multiple financing channels. Established on May 25,1998, XIP
Southeast coast. In 2009, Xiamen port is the 7th largest port in   was listed on the HKEx on Dec 19, 2005, at an IPO price of
China in terms of container throughput. Total cargo throughput HK$1.38. It is currently 62.5% owned by Xiamen Port Holding
at the Xiamen hub reached 111mt in 2009, double that in 2005. Co., Ltd., which is fully-owned by the Xiamen municipal
One of the seven bonded ports is also located in the Haicang       government. XIP also holds 55.1% equity stake in Xiamen Port
area of the Xiamen hub.                                            Development Co., Ltd. (000905.CH), which has been listed on
                                                                 the A-share market since Apr 29, 1999.


 XIP’s Structure

                                                Xiamen Municipal
                                                Bureau of Finance
                      100%
                                                          100%

             Other domestic                   Xiamen Port Holding                            Public
              shareholders                         Co., Ltd.                            H-share 3378.HK

                      1.35%                               62.46%                                     36.19%

                                              Xiamen International
                                                      Port

                                                                                             Public
                                                                                       A-share 000905.CH
                                                          55.13%
                                                                                                     44.87%
     Container port operation for                 Xiamen Port
     international trade in the Dongdu        Development Co., Ltd.
     port area and Haicang port area



     Port container operation for                                         Non-port-related businesses:
     domestic trade in the Dongdu
     port area                                                            Manufacturing, processing,
                                                                          wholesaling and retailing of
                                                                          construction materials
     Bulk/general cargo operation for
     domestic and international trade                                     Long-term investment holding in
     in the Dongdu port area                                              Xiamen Road & Bridge Building
                                                                          Materials Corp. Ltd.

     Ancillary value-added port                                           Investments in financial
     services including port-related                                      institutions
     logistics, shipping agency,
     tugboat berthing and unberthing
     services and tallying


Source: Company, DBS Vickers




                                                                                                                        Page 105
China Port Sector
Xiamen Int’l Port



 XIP’s Terminal Assets
                                                                        Depth        Quay                      Design
                                                          Berth                                Max ship
                       Stake     Partner        Area                 alongside     length                 capacity (mn          Major customers
                                                            no.                                    size
                                                                           (m)        (m)                  TEU/mn mt)
  Container
  Haitian^             100%            NA    Dongdu           5-11    12.2-13.8     1,510     8,468 TEU            1.5            CSCL, COSCON,
  Dongdu^              100%            NA    Dongdu             1      9.9-11.9        166   70,000 DWT            0.2          Evergreen, CMA-
  Hairui#              100%            NA    Haicang           4-5          15.3       390   12,000 TEU            0.1                      CGM
  XICT*                 51%           HPH    Haicang           2-3          13.3       640    8,600 TEU            0.9            Maersk, Grand
  XHICT Haicang         51%           HPH    Haicang            1           17.5       444   12,000 TEU            0.4                  Alliance
  Subtotal                                                                                                         3.0
  Bulk/general
  cargo
  Dongdu               100%            NA    Dongdu            2-4     9.9-11.9        661   70,000 DWT            3.2
  XICT                  51%           HPH    Haicang           2-3          13.3       640    8,600 TEU            NA       Various customers
  XHICT Haicang         51%           HPH    Haicang            1           17.5       444   12,000 TEU            NA



 ^ through XPD, # 85% owned by XIP and 15% owned by XPD, * JV of HPH and Xiamen Haicang Port Co., Ltd. (XHPC, 70% owned by XIP
 and 30% owned by Xiamen Int’l Trade Group Crop.)
 Source: Company, DBS Vickers

 XICT: Xiamen International Container Terminals Ltd., XHICT: Xiamen Haicang International Container Terminal Ltd., HPH: Hutchison Port
 Holdings, CSCL: China Shipping Container Lines Co., Ltd., COSCON: COSCO Container Lines Co., Ltd., Maersk: A.P. Moller-Maserk



Terminal cargo handling operations                                     However, its market share of the container handling business
                                                                       was diluted from 77% in 2004 to 65% in 2009, due to new
Dominance in Xiamen. Through its A-share listed subsidiaries,          terminals established by its parent and new competitors. After
XIP owns and operates the largest bulk/general cargo terminal          the port areas of Xiamen and Zhangzhou merged to become
in Fujian province, and the only domestic container terminal in        the Xiamen hub under a single regulatory authority, the Xiamen
Xiamen (excluding Zhangzhou Zhaoyin port area). It has been            Port Authority, operators in Zhangzhou port area have been
able to maintain its leading position with over 60% market             competing directly with XIP. In addition, two new terminals
share of total container throughput in Xiamen.                         established by XIP’s customers and Haicang district government
                                                                       are expected to commence operation in 2011. This could also
                                                                       take some businesses away from XIP.

 Other Container Terminals in Xiamen
                                                                                                                                   Designed
                                                      No. of     Depth                                           Operation
                                                                            Structre                                                capacity
                                                      berths       (m)                                                date
                                                                                                                                   (mn TEU)
  Xiangyu Terminal, Dongdu #12-16                         5          12.2   NWS 50%, Xiamen Xiangyu 50%         Operational              1.0
  Haicang #6                                              1          15.3   XPH 100%, leased to XIP             Operational              0.1
  Xiamen Ocean Gate Container Terminal,
                                                          4          17.0   CP 70%, Haicang Government 30%           2011^               2.8
  Haicang #14-17
                                                                            Haicang Government 30%, CMA-
  Xinhaida Container Terminal, Haicang #18-19             2          17.0                                                2011            1.1
                                                                            CGM 30%, NWS 40%
  Songyu Phase 1                                          3          17.0   XPH 50%, APMT 50%                   Operational              1.8
  Total                                                                                                                                  6.8

 ^ 2 berths with 1.4mn TEU annual capacity in 2011.
 Source: Company, DBS Vickers

 NWS: NWS Holdings Ltd., XPH: Xiamen Port Holding Co., Ltd., CP: COSCO Pacific Ltd., APMT: A.P. Moller-Maserk Terminals




Page 106
                                                                                                               China Port Sector
                                                                                                              Xiamen Int’l Port



                                                                  expect the Songyu terminal to turn in a profit this year and XIP
Potential for more terminal acquisitions from parent. The 1.8m
                                                                  might thus exercise its option next year. We believe the
TEU-capacity Songyu terminal phase I commenced operation in
                                                                  acquisition could enhance XIP’s competitive edge and bring in
2008. This was jointly established by its parent and Maersk
                                                                  business from the largest shipping liner. Other potential
(50:50). XIP has the priority option to acquire 50% stake in
                                                                  acquisitions from its parent include the 60,000 TEU-capacity
Songyu phase I from its parent, but suspended the exercise of
                                                                  Haicang area berth 6, and several bulk/liquefied chemical
the option because the terminal has been loss-making in the
                                                                  terminals in Haicang and Dongdu port areas.
past two years. However, with the economy improving, we

Revenue Breakdown FY09                                            Segmental Operating Profit Breakdown FY09


                                                                    Ancillary value-
                                            Container loading                                                   Manufacuring and
    Trading of                                                       added port
                                             and unloading                                                      selling of building
    industrial                                                         services
                                              and storage                                                             materials
     products                                                             40%
                                                business                                                                3%
       26%
                                                  30%
                                                                                                                      Trading of
                                                                                                                      industrial
                                                                                                                       products
                                                                                                                         2%
                                                                                   Container loading
anufacuring and         Ancillary value-         Bulk/general                       and unloading
lling of building        added port           cargo loading and                      and storage
    materials              services               unloading                            business
      14%                     24%                  business                              55%
                                                      6%


Source: Company, DBS Vickers                                      Source: Company, DBS Vickers

                                                                    control the scale of trading business to reduce trading risks. Its
Cargo handling – major income contributor. The cargo
                                                                    cargo handling business contributed to 55% of operating
handling (container and bulk) business accounted for 36% of
                                                                    profit in FY09 due to the high margins.
group revenue in FY09, compared to 26% in FY08. This is
because that XIP plans to refocus on its port business and

Container Throughput and Tariff of XIP                            Bulk Throughput and Tariff of XIP


    mn TEU                                     RMB/TEU               mn mt                                             RMB/mt
 3.5                                                 350           6.0                                                      45

 3.0                                                 300                                                                    40
                                                                   5.0
                                                                                                                            35
 2.5                                                 250
                                                                   4.0                                                      30
 2.0                                                 200                                                                    25
                                                                   3.0
 1.5                                                 150                                                                    20
                                                                   2.0                                                      15
 1.0                                                 100
                                                                                                                            10
 0.5                                                 50            1.0
                                                                                                                            5
 0.0                                                 0             0.0                                                      0
       2002 2003 2004 2005 2006 2007 2008 2009                           2002 2003 2004 2005 2006 2007 2008 2009
          Container throughput (LHS)       Tariff (RHS)                     Bulk throughput (LHS)                Tariff (RHS)

Source: Company, DBS Vickers                                      Source: Company, DBS Vickers




                                                                                                                                Page 107
China Port Sector
Xiamen Int’l Port



                                                                      XIP is also involved in the trading of industrial products and
In FY09, total container throughput handled by XIP fell 6%, the
                                                                      manufacture and sale of building materials, through its A-listed
first decline in recent years. However, its domestic and
                                                                      subsidiary. These businesses contributed 14% and 24% of total
transhipment businesses continued to post rapid growth, up
                                                                      revenue, respectively, in FY09, but only 3% and 2% of
27% and 134% y-o-y, respectively. The decrease in tariff over
                                                                      operating profit due to low margins.
time is the result of increasing domestic trade portion and
intensifying competition in the port of Xiamen. Following a
                                                                      Although its industrial products trading business registered
gradual recovery of the global economy, we expect both
                                                                      rapid growth during FY06-FY08 and facilitated the growth of
container throughput and tariff to recover this year. For FY11F,
                                                                      the port handling throughput, XIP decided to scale down its
we expect a slowdown of container throughput, due to
                                                                      trading business due to the low margins and relatively high
competition from the new terminal launched in Xiamen hub.
                                                                      market risks.
Handling tariff is expected to maintain flat.
                                                                Cost Structure
Driven by huge investments by China’s government last year,
bulk/general cargo throughput handled by XIP continued to
grow, by 10% y-o-y. However, blended handling fees tumbled      Cost Breakdown FY09
because the high-fee stone and steel businesses were diluted by
                                                                 Expenses by nature                          As % of         As % of
competitors. This segment made an operating loss in FY09 due                                              total COGS            total
to the drop in higher tariff cargos, including stone and steel                                             and SG&A          revenue
products. As the global economy recovered, XIP is expected to    Cost of inventories sold                      46.4%           40.5%
regain some steel handling business that is expected to drive    Employee benefit expenses                     22.7%           19.8%
segmental revenue and improve segmental margins.                 Depreciation of PPE                           10.3%            9.0%
                                                                       Distribution, transportation             5.7%            4.9%
Ancillary value-added port services                                    and labour outsourcing
                                                                       Business tax, stamp duty                 3.7%            3.2%
                                                                       and real estate tax
Exclusive ancillary services provider. To complement its port
                                                                       Advertising and marketing                1.3%            1.1%
cargo handling business, XIP offers ancillary value-added port         expenses
services that include shipping agency, tallying, tugboat berthing      Amortisation of land use                 1.3%            1.2%
and unberthing, and port-related logistics services. The tugging       rights and intangible assets
business requires a large initial investment, which is a high entry    Operating lease rental in                0.2%            0.2%
barrier. As such, XIP is the only provider of tugging services in      respect of PPE
                                                                       General office expenses                  3.3%            2.9%
the port of Xiamen. Supported by its sea-rail joint transportation
                                                                       Repairs and maintenance                  1.2%            1.1%
container and bonded logistics businesses, its ancillary value-
                                                                       Property insurance expenses              1.4%            1.2%
added port services registered steady 11% CAGR during FY05-
                                                                       Auditors' remuneration                   0.7%            0.6%
FY08, but fell 7% in FY09. It accounted for 24% of group
                                                                       Provision                                0.5%            0.4%
revenue and 40% of operating profit in FY09.
                                                                       Others                                   1.3%            1.2%
Extended service coverage. The volume of sea-rail joint                Total COGS and SG&A                   100.0%            87.2%
transportation in Xiamen port increased by over 95% y-o-y in          Source: Company, DBS Vickers
FY09 and 206% in 1Q10. However, the contribution to total
throughput is still limited due to the low base. Its sea-rail joint
                                                                      Increasing cost of inventories sold due to its trading business.
transportation business covers all regions in Fujian and Jiangxi
                                                                      Cost of inventories as a percentage of total costs grew from
provinces. XIP and the Xiamen government will continue to
                                                                      26% in FY05 to 46% in FY09, in line with trading business
expand the hinterland network to Hunan, east Guangdong and
                                                                      revenue growth. But since XIP plans to scale back its trading
vast middle and western areas. The extended hinterland
                                                                      business, we expect cost of inventories sold to drop.
connection will not only generate demand for its value-added
business, but also more throughput for its port handling              The other big cost items comprise employee expenses and D&A
business.                                                             expenses, which accounted for 23% and 10% of total costs,
                                                                      respectively, in FY09. XIP will focus on controlling staff costs this
At the beginning of 2010, XIP established a branch in Yangpu,
                                                                      year. In addition, XIP has completed the transformation of port
Hainan province, to operate tugging services. This will further
                                                                      facilities from oil-powered to electricity-powered, which will
increase its ancillary value-added port services revenue.
                                                                      save cost amidst rising oil prices.
Non-port related businesses




Page 108
                                                                                                                China Port Sector
                                                                                                               Xiamen Int’l Port




GROWTH PROSPECTS                                                     economic pact. Trade between mainland and Taiwan rose 67%
                                                                     y-o-y thus far in the first five months of 2010.
Direct beneficiary of favourable cross-strait trade relations. At
the end of 2008, cross-strait relations reached a milestone with     Government plans to develop a modern industrial base in the
the “Three Direct Link” – direct flights, shipping and postal        west coast (“Haixi”) of Taiwan Strait. In 2007, the Fujian
services across the Taiwan Straits. Some may argue that the          government announced it would construct scaled industrial
port throughput in Xiamen hub may be diluted as there are a          clusters, port cluster and city cluster in the west coast region.
total of 48 coastal ports and 15 inland river ports in mainland.     In Oct 10, 2009, MIIT also issued a document to support the
But consider the following:                                          economic zone in Fujian province, to accelerate industrial and
                                                                     information technology development. The document aims to
• Fujian and Taiwan have a long relationship history. There are      support industrial cooperation between Fujian and Taiwan, and
  a lot of Taiwan investments in Fujian, and the Fujian              encourages the development of information technology and
  government encourages Fujian enterprises to invest in              machinery equipment manufacturing in Fujian province. In May
  Taiwan.                                                            2010, China’s leading newspaper group – China Daily -
                                                                     reached an agreement with Fujian province to promote the
• Fujian ports are the closest to ports in Taiwan. Port handling     Haixi region, which signals the strategic position of the region.
  charges in Fujian are also the cheapest among major coastal
  ports in China.                                                    Light industry in Fujian. There is a growing number of light
                                                                     industries originating in or relocated to Fujian due to low labor
• Xiamen hub is the largest port in the west coast of Taiwan         and transportation costs. This is partly evidenced by the large
  Straits with comprehensive port handling facilities. One of        number of sportswear brands listed in the Hong Kong and
  the seven bonded ports is also located in the Haicang area         Singapore stock markets (Xtep 1368.HK, 361 1361.HK, Peak
  of Xiamen hub. It is expected to be the corridor that will link    1968.HK, Anta 2020.HK, Erke CHXS.SG) which manufacturing
  Taiwan and middle and western China.                               operations are based in Fujian province. We also see more
                                                                     brands including Qiaodan, Exceed, Deerway and JIVK,
The long-awaited Economic Cooperation Framework                      expanding their operations and plans to go public.
Agreement (ECFA) was signed on Jun29, 2010, which will               Government support for the high tech and heavy industries
remove tariffs on 539 Taiwan exports products to the mainland        and the competitive light industries in Fujian province will
and 267 mainland exports products to Taiwan within two years.        continue to enhance domestic and foreign trade, which will
ECFA will be effective after approved by Taiwan’s legislature.       directly or indirectly benefit XIP.
We believe that XIP will directly benefit from the cross-Strait

Fujian Export Breakdown by Categories (FY09)                        Fujian Export Breakdown by Regions (FY09)

                                              Instruments &                                                       North
                     Apparel &                    optical                Europe
                                                                                                                 America
                     accessories                    9%                    22%
                                                                                                                  19%
                        17%
                                               Miscellaneous
                                                 product
                                                    6%
       Machinery &                                 Food &                                                             Oceania
        transport                                 beverage                                                              2%
       equipment                                     5%
           35%
                                               Raw material                                                          South
                                                   7%                                                               America
                      Manufactured                                                                                 and Africa
                      good grouped         Chemical &                                                                 9%
                       by material           related                     Asia
                          14%                  7%                        48%


Source: CEIC, DBS Vickers                                           Source: CEIC, DBS Vickers




                                                                                                                              Page 109
China Port Sector
Xiamen Int’l Port




Fujian GDP Outpaces Nation’s Average                                                                                                       Cargo Throughput Growth in Xiamen Hub


 %                                                                                                                                          70%
 16
                                                                                                                                            60%
 14
 12                                                                                                                                         50%
 10                                                                                                                                         40%
  8
                                                                                                                                            30%
  6
                                                                                                                                            20%
  4
  2                                                                                                                                         10%
  0                                                                                                                                          0%
             2000

                             2001

                                        2002

                                                    2003

                                                                    2004

                                                                                2005

                                                                                           2006

                                                                                                       2007

                                                                                                                       2008

                                                                                                                                  2009




                                                                                                                                                           2001

                                                                                                                                                                       2002

                                                                                                                                                                                   2003

                                                                                                                                                                                              2004

                                                                                                                                                                                                        2005

                                                                                                                                                                                                                   2006

                                                                                                                                                                                                                               2007

                                                                                                                                                                                                                                               2008

                                                                                                                                                                                                                                                               2009
                                                 Nation                                    Fujian                                                                                            Nation                        Xiamen

Source: CEIC, DBS Vickers                                                                                                                  Source: CEIC, DBS Vickers



Leveraging on rapidly growing Xiamen hub. Xiamen port is one                                                                                According to the national coastal ports plan, Xiamen port is
of the Top 8 coastal ports in China in terms of total cargo                                                                                 designed to be the trunk line port for container cargo in the
throughput. It also achieved the fastest throughput growth                                                                                  southeast coastal area. It also continues to be the major grain
among the 8 coastal ports. Over the 1999-2009 period, total                                                                                 warehousing and transportation port, passenger transfer and
throughput at the Xiamen hub registered 23% CAGR,                                                                                           transportation port, and Ro-Ro transportation port in Fujian
outpacing the average of 19% for the nation. In FY09, total                                                                                 province.
cargo throughput breached 111mt at Xiamen port.

Port Climate Index: West Coast (Sep2006=100)                                                                                               Port Lump Sum Price Index: Bulk & General Freight (West
                                                                                                                                           Coast)


 Sep 06=100                                                                                                                                 108
 160
                                                                                                                                            106
 140
                                                                                                                                            104
 120                                                                                                                                        102
 100
                                                                                                                                            100
  80                                                                                                                                         98
  60                                                                                                                                         96
  40                                                                                                                                         94
                                                                                                                                                  Dec-07



                                                                                                                                                                         Jun-08

                                                                                                                                                                                    Sep-08

                                                                                                                                                                                              Dec-08



                                                                                                                                                                                                                Jun-09

                                                                                                                                                                                                                          Sep-09
                                                                                                                                                              Mar-08




                                                                                                                                                                                                       Mar-09




                                                                                                                                                                                                                                      Dec-09

                                                                                                                                                                                                                                                      Mar-10




  20
     0
                    Aug-07




                                                           Aug-08




                                                                                                   Aug-09
         May-07


                               Nov-07
                                        Feb-08
                                                 May-08


                                                                       Nov-08
                                                                                 Feb-09
                                                                                          May-09


                                                                                                              Nov-09
                                                                                                                         Feb-10
                                                                                                                                  May-10




                                                                                                                                                                                  Domestic trade (Sep2006=100)
                                                                                                                                                                                  Foreign trade (Nov2006=100)

Source: CEIC, DBS Vickers                                                                                                                  Source: CEIC, DBS Vickers




Page 110
                                                                                                             China Port Sector
                                                                                                            Xiamen Int’l Port



                                                                  Intensified competition between different terminal operators
Expanded hinterland. Through the construction of a land-base
                                                                  may arise in Xiamen hub. Shipping liners will definitely shift
port, XIPC expanded its port functioning business to middle
                                                                  business to the terminals they have stakes in. The Haicang
and western China. In 2008, five regular sea-rail joint
                                                                  district government may also administratively direct some
transportation services commenced operation between
                                                                  businesses to the terminals it has stakes in.
Nanchang, Jiangxi and Xiamen port. By now, Xiamen port has
became the major export hub for apparels, shoes and auto
                                                                  In addition, XIP’s bulk/general business also faces competition
products in Jiangxi. The sea-rail joint transportation services
                                                                  from the port of Zhangzhou and Quanzhou. Two port
also cover Fujian and Jiangxi provinces, and have expanded to
                                                                  conglomerates – CMHI and CP all have port investments in the
Hunan province. This will bring in more business to Xiamen
                                                                  region. CMHI has terminal subsidiary handling bulk cargo in
port in the long run.
                                                                  Zhangzhou, while CP has terminal subsidiaries handling bulk
                                                                  cargo in Quanzhou and Jinjiang.
Key Risks
                                                                  We expect future asset acquisition from parent to enhance
Growing competition from terminal operators in the Xiamen         XIP’s competitive edge and business scale. XIP has the priority
hub and neighbouring ports. Two new terminals established by      option to acquire 50% stake in Songyu phase I from its parent,
XIP’s customers and the Haicang district government will take     but suspended the exercise of the option because the terminal
some business away from XIP. One terminal in Haicang area         had been loss-making in the past two years. But with the
(berth 14-17) with 1.4mn TEU (2 berths launched in 2011)          economy improving, we expect the Songyu terminal to turn in
total container handling capacity established by CP (70%) and     a profit this year and XIP might exercise its option next year.
the Haicang district government is expected to start operation    Other possible acquisitions from its parent include the 60k
in 2011. Another terminal operator with 1.1mn TEU capacity in     TEU-capacity Haicang area berth 6, and several bulk/liquefied
Haicang area (berth 18&19) was formed by NWS (40%),               chemical terminals in Haicang and Dongdu port areas.
Haicang government (30%) and CMA-CGM (30%). The 2.5mn
TEU new capacity is near XIP’s current 3.0mn TEU capacity.




                                                                                                                          Page 111
China Port Sector
Xiamen Int’l Port



SEGMENTAL ANALYSIS

                                                                   expected to return to 30% premised on volume and tariff
Container business projected to pick up with economic
                                                                   growth.
recovery and free trade agreement cross-Strait. We believe XIP
will directly benefit from closer ties between mainland and
                                                                   Margin improves in bulk/general business. Bulk/general cargo
Taiwan. Coupled with a recovery in global demand, we expect
                                                                   throughput in FY09 grew 10% y-o-y, but the segment made
container throughput to grow 13% in FY10F and 9% in FY11F.
                                                                   an operating loss due to the drop in higher tariff cargos,
This does not include the possible acquisition of Songyu
                                                                   including stone and steel products. XIP has regained some steel
terminal. We also project a 2% increase in handling charge in
                                                                   business, which is expected to improve segmental margins.
FY10F, as a result of increasing international business volume
                                                                   Total bulk throughput growth is estimated at 13% and 9%,
and falling number of empty containers. Operating margin is
                                                                   respectively, for FY10F and FY11F, driven by the new XHICT
                                                                   terminal.
Port Operation Assumptions

 FY Dec                                                     2008A                 2009A                2010F               2011F
 Container throughput (mn TEU)
 Haitian, Hairun and Dongdu (berth No.1) terminals                2.3                 2.1                 2.4                 2.6
 XICT & XHICT                                                     1.0                 0.9                 1.1                 1.2
 Subtotal                                                         3.2                 3.0                 3.4                 3.8
 Container throughput growth (%)
 Haitian, Hairun and Dongdu (berth No.1) terminals               12%                 -8%                12%                   8%
 XICT                                                        -17%                    -2%                15%                  12%
 Subtotal                                                        1%                  -6%                13%                   9%


 General/bulk throughput (mn mt)
 XICT & XHICT                                                    0.05               0.37                 0.55                0.66
 Dongdu                                                          4.77               4.97                 5.46                5.90
 Subtotal                                                        4.82               5.33                 6.01                6.56
 General/bulk throughput growth (%)
 XICT & XHICT                                                -74%                  631%                 50%                  20%
 Dongdu                                                          12%                 4%                 10%                   8%
 Subtotal                                                        8%                 11%                 13%                   9%


 Blended handling charge
 Container (RMB/TEU)                                             267                 244                 249                 249
 General/bulk (RMB/mt)                                            30                  24                  24                   25
 Blended handling charge growth (%)
 Container                                                       -2%                 -9%                 2%                   0%
 General/bulk                                                -25%                  -20%                  2%                   2%


Source: Company, DBS Vickers




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                                                                                                          China Port Sector
                                                                                                         Xiamen Int’l Port



                                                                 profit margins for these two segments are estimated to remain
Steady ancillary port services. As an exclusive ancillary port
                                                                 at FY09 level.
service provider, we believe XIP can generate stable 12% y-o-y
revenue growth for the next two years. Operating profit
                                                                 Total revenue is projected to grow 11% and 8% y-o-y in
margin is expected to improve from 26.6% in FY09 to 29.0%
                                                                 FY10F and FY11F respectively, as a mixed result of increasing
in FY11F, on better operating leverage.
                                                                 port-related business and decreasing trading business.
                                                                 Operating profit is expected to gradually improve to 17.6% in
Contracting trading business. We project 5% y-o-y revenue
                                                                 FY11F from 15.6% in FY09, due to the improved terminal
growth for its building material business. As China’s steel
                                                                 operating margin and lower portion of low-margin trading
exports doubled in 1H10 as compared to that in 1H09, we
                                                                 business. This results a CAGR of 17% operating profit growth
forecast 10% and 5% y-o-y growth in for the revenue of its
                                                                 over FY09-FY11F.
trading business for FY10F and FY11F, respectively. Operating

Segmental Analysis

FY Dec                                                           2008A             2009A               2010F              2011F


Revenues
 Container loading and unloading and storage business              742                631                724                788
 Bulk/general cargo loading and unloading business                 143                122                139                154
 Ancillary value-added port services                               531                493                552                618
 Manufacturing and selling of building materials                   284                283                297                312
 Trading of industrial products                                  1,712                537                591                620
Total                                                            3,412              2,066              2,303              2,492

Operating Profit
 Container loading and unloading and storage business              323                180                217                236
 Bulk/general cargo loading and unloading business                   3                 (5)                 3                  5
 Ancillary value-added port services                               153                131                149                179
 Manufacturing and selling of building materials                     6                   9                10                 10
 Trading of industrial products                                     22                   8                 8                  9
Total                                                              506                323                387                439

Operating Profit Margins
 Container loading and unloading and storage business             43.5               28.5               30.0               30.0
 Bulk/general cargo loading and unloading business                 1.8               (4.4)               2.0                3.0
 Ancillary value-added port services                              28.8               26.6               27.0               29.0
 Manufacturing and selling of building materials                   2.3                3.3                3.3                3.3
 Trading of industrial products                                    1.3                 1.4               1.4                1.4
Total                                                             14.8               15.6               16.8               17.6

Source: Company, DBS Vickers




                                                                                                                       Page 113
China Port Sector
Xiamen Int’l Port




INTERIM PERFORMANCE                                             compared to 1H09. The Bulk business still made an operating
                                                                loss, but it was smaller in 2H09. Accordingly, 2H09 group
Revenue recover, margins improved in 2H09. Although total       operating margin rebounded to 15.6%, the highest in the
revenue fell 18% y-o-y in 2H09, it grew 25.7% compared to       past two years. Net margin returned to just over 10% in 2H09,
1H09. Among the segments, Bulk and building material            compared to 12.9% in 2H08, dragged down by a higher tax
revenue grew 2.0% and 15.9% y-o-y, respectively, in 2H09,       rate.
mainly due to the low base in 2H08. Trading business fell
40.9% y-o-y in 2H09 after management scaled back its trading    XPD’s 1Q result beat expectations. XIP’s A-share subsidiary,
business. Meanwhile, revenues from container and port related   XPD, recorded 1.7% y-o-y revenue growth and 164.2% net
businesses fell by a narrower 8.3% and 2.7% y-o-y,              profit growth in 1Q10. This was mainly attributed to the
respectively, in 2H09, from 19.8% and 10.2% in 1H09.            recovering economy and improved margins at its bulk cargo
                                                                terminal, ancillary and construction material businesses.
Except for the port handling business, operating margins
improved for the other three business segments in 2H09

Interim Income Statement (RMB m)

FY Dec                                            1H2008               2H2008                   1H2009                  2H2009


Turnover                                           2,014.9              1,396.6                   915.6                 1,150.3
Cost of Goods Sold                               (1,668.0)            (1,132.0)                 (722.1)                  (905.9)
Gross Profit                                         346.9                264.6                  193.4                    244.4
Other Oper. (Exp)/Inc                                (77.2)               (73.8)                  (66.2)                   (64.6)
Operating Profit                                     269.7                190.9                  127.3                    179.8
Other Non Opg (Exp)/Inc                                6.5                 39.1                      1.3                    14.4
Associates & JV Inc                                     1.1                  0.9                     0.8                      0.6
Net Interest (Exp)/Inc                                (3.2)                (2.9)                   (6.3)                    (7.2)
Exceptional Gain/(Loss)                                N/A                  N/A                     N/A                      N/A
Pre-tax Profit                                       274.1                228.0                  123.1                    187.7
Tax                                                  (15.8)               (12.0)                  (16.0)                   (23.6)
Minority Interest                                    (61.2)               (36.4)                 (24.7)                   (41.4)
Net Profit                                           197.1                179.5                    82.4                   122.7
Net profit bef Except.                               197.1                179.5                    82.4                   122.7
EBITDA                                               375.0                329.8                   234.8                    301.0

Sales Gth (%)                                          91                   (24)                    (55)                    (18)
EBITDA Gth (%)                                          8                  (15)                     (37)                      (9)
Opg Profit Gth                                          8                  (20)                     (53)                      (6)
Net Profit Gth (%)                                   14.8                (11.4)                   (58.2)                  (31.6)
Gross Margins (%)                                    17.2                 18.9                     21.1                     21.2
Opg Profit Margins (%)                               13.4                 13.7                     13.9                    15.6
Net Profit Margins (%)                                9.8                  12.9                      9.0                    10.7

Source: Company, DBS Vickers




Page 114
                                                                                                                                                                                   China Port Sector
                                                                                                                                                                                 Xiamen Int’l Port




FINANCIALS – INCOME STATEMENT

                                                                                                                     to improve to 17.6% in FY11F led by its high-margin port
Refocus on port-related businesses, expect better margins.
                                                                                                                     business.
XIP’s revenue had been growing rapidly during FY06-FY08,
driven by the trading business that commenced in FY06. But
                                                                                                                     Expect 16% CAGR of earnings over FY09-FY11F. We expect
revenue slumped 39% y-o-y in FY09 due to the global crisis
                                                                                                                     XIP’s effective tax rate to increase gradually as its tax holiday
and contraction of its trading business. But given its plan to
                                                                                                                     and benefits expire. But even after factoring in higher tax rates,
refocus on port-related businesses, we project a CAGR of 7%
                                                                                                                     we forecast net profit will grow at a CAGR of 16% over FY09-
of its revenue over FY09-FY11F. Operating margin is expected
                                                                                                                     FY11F, driven by revenue growth and improving margins.


                                  Sales Trend                                                   Operating Cost Trend                                                 Profitability Trend
         RMB m
            3,500                                                    80.0%               3000                                                          400
                                                                                                                                                                                                              32%
            3,000                                                                                                                                      350                                                    22%
                                                                     60.0%               2500
                                                                                                                                                       300                                                    12%
            2,500
                                                                     40.0%               2000
                                                                                                                                                       250                                                    02%
            2,000
                                                                     20.0%               1500                                                          200                                                    (08%)
            1,500
                                                                                                                                                       150                                                    (18%)
                                                                     0.0%                1000
            1,000
                                                                                                                                                       100                                                    (28%)
                 500                                                 -20.0%               500
                                                                                                                                                        50                                                    (38%)
                   0                                                 -40.0%                0                                                             0                                                    (48%)
                        2007A    2008A   2009A   2010F    2011F                                 2007A    2008A     2009A         2010F    2011F              2007A   2008A       2009A      2010F     2011F
                                                                                                           Other Operating Expenses (-)                              Net Profit (After-extraordinaries)
                       Total Revenue      Revenue Growth (%) (YoY)                                         Cost of Goods Sold (-)
                                                                                                                                                                     Net Profit Growth (%) (YoY)




FY Dec                                                                        2006A                     2007A                             2008A       2009A                       2010F                             2011F

Turnover                                                                        1,724                 2,891                                 3,412       2,066                     2,303                          2,492
Cost of Goods Sold                                                            (1,117)               (2,250)                               (2,800)     (1,628)                    (1,685)                        (1,736)
Gross Profit                                                                      607                   641                                   612         438                       618                            756
Other Opg (Exp)/Inc                                                             (171)                 (131)                                 (151)       (131)                      (231)                          (317)
Operating Profit                                                                  436                   487                                   461         307                       387                            439
Other Non Opg (Exp)/Inc                                                            57                    61                                    46          16                           0                             0
Associates & JV Inc                                                                  6                     4                                      2          1                          2                              2
Net Interest (Exp)/Inc                                                              5                    11                                     (6)       (14)                        (4)                             2
Exceptional Gain/(Loss)                                                              0                     0                                      0          0                          0                              0
Pre-tax Profit                                                                    505                   563                                   502         311                       385                            443
Tax                                                                               (94)                  (57)                                  (28)        (40)                       (58)                           (80)
Minority Interest                                                               (130)                 (132)                                   (98)        (66)                      (80)                            (89)
Preference Dividend                                                                 0                     0                                       0          0                          0                             0
Net Profit                                                                        281                   374                                   377         205                       248                            275
Net profit before Except.                                                         281                   374                                   377         205                       248                            275
EBITDA                                                                            656                   737                                   705         536                        622                            697

Sales Gth (%)                                                                   32.6                     67.7                                18.0      (39.4)                         11.5                             8.2
EBITDA Gth (%)                                                                  15.4                     12.4                                (4.4)     (24.0)                         16.0                            12.1
Operating Profit Gth (%)                                                         2.1                     11.9                                (5.5)     (33.3)                         26.1                            13.4
Net Profit Gth (%)                                                              15.4                     33.3                                  0.6     (45.5)                         20.7                            11.1
Gross Margins (%)                                                               35.2                     22.2                                17.9        21.2                         26.8                            30.4
Opg Margins (%)                                                                 25.3                     16.9                                13.5        14.9                         16.8                            17.6
Net Profit Margins (%)                                                          16.3                     13.0                                11.0         9.9                         10.8                            11.0
% of Opg Expenses to Sales                                                       9.9                      5.3                                  4.4        6.3                         10.0                            12.7
Effective Tax Rate (%)                                                          18.6                     10.1                                  5.5       12.7                         15.0                            18.0

Source: Company, DBS Vickers




                                                                                                                                                                                                              Page 115
China Port Sector
Xiamen Int’l Port




FINANCIALS – BALANCE SHEET                                       seek further investments. We also expect the long-awaited
                                                                 acquisition of Songyu terminal phase I from its parent to be
Cash rich to support more acquisitions. XIP has been in net cash finalised by the next year, which could be funded by its cash
position for the past few years. At end-2009, it had RMB422m     rich position.
net cash, which gives it more flexibility to pay down debt or



                  Breakdown of Assets                        Breakdown of Capital                              Financial Leverage & Net Debt to Equity

                                                                                                                430
                             Debtors -                                                                                                                                         1.7
               Inventory -
                              10.3%                                                                             380
                  2.4%                                                              ST Debt -
                                                                                                                                                                               1.6
                                                                                      6.9% LT Debt -
                                                                                              8.2%              330
           Bank, Cash                                                                                                                                                          1.5
           and Liquid                                                                                           280
            Assets -                                                                                                                                                           1.4
             14.0%                                                                                              230

                                         Net Fixed            Common                                            180                                                            1.3
                                          Assets -           Shareholder
                                          73.3%               s' Equity -                                       130                                                            1.2
                                                                84.9%                                                  2007A      2008A      2009A       2010F      2011F
                                                                                                                  Net Debt/(Cash)                   Net Debt to Equity (X) (R.H.S)
                                                                                                                  Financial Leverage (X) (R.H.S)




FY Dec                                               2006A             2007A                           2008A    2009A                              2010F                         2011F

Net Fixed Assets                                     3,897                  4,260                      4,309     4,209                       4,233.4                             4,260
Invts in Assocs & JVs                                   45                     35                         35        35                            36                                38
Other LT Assets                                        114                    257                        153       298                           294                               289
Cash & ST Invts                                      1,014                  1,095                      1,031       938                           935                             1,034
Inventory                                              118                    403                        133       137                           140                               143
Debtors                                                448                    547                        491       591                           659                               713
Other Current Assets                                   210                    520                        382       338                           338                               338
Total Assets                                         5,847                  7,117                      6,534     6,546                         6,635                             6,814

ST Debt                                                  6                    462                        303       116                                66                            16
Other Current Liab                                     967                  1,421                      1,034     1,192                             1,210                         1,223
LT Debt                                                591                    545                        361       269                               219                           169
Other LT Liabilities                                   166                    205                        173       182                               182                           182
Shareholder’s Equity                                 3,312                  3,602                      3,744     3,871                             3,982                         4,183
Minority Interests                                     806                    881                        920       917                               977                         1,041
Total Cap. & Liab.                                   5,847                  7,117                      6,534     6,546                             6,635                         6,814

 Total Debt                                          597.3         1,007.2                             664.0    384.8                          284.8                           184.8
 Net Cash / (Debt)                                    417              88                               367      554                            650                             849

 Coverage Ratios (x)
 Net Interest Cover                                   N/A                   N/A                         75.8     22.7                          101.0                                  N/A
 Free Cashflow to interest Exp                        nm                    nm                           9.5      5.8                            5.7                                 16.6

 Leverage Analysis (x)
 EBITDA Gross Interest Cover                          36.6              43.0                            21.2     19.2                           34.8                            55.7
 Total Debt to EBITDA                                  0.9               1.4                             0.9      0.7                            0.5                             0.3
 Total Debt to Total Assets                            0.1               0.1                             0.1      0.1                            0.0                             0.0
 Total Debt to Capital                                 0.1               0.2                             0.1      0.1                            0.1                             0.0
 Net Debt to Equity                                  CASH              CASH                            CASH     CASH                           CASH                            CASH
 Capex to Debt                                         0.7               0.5                             0.1      0.5                            0.9                             1.5

 Liquidity Analysis (x)
 Cash Ratio                                            1.0                   0.6                         0.8          0.7                           0.7                               0.8
 Current Ratio                                         1.8                   1.4                         1.5          1.5                           1.6                               1.8
 Quick Ratio                                           1.5                   0.9                         1.1          1.2                           1.2                               1.4

Source: Company, DBS Vickers




Page 116
                                                                                                                                                                                  China Port Sector
                                                                                                                                                                                 Xiamen Int’l Port



FINANCIALS – CASH FLOW                                                                                          No large capex in FY10F. Management indicated RMB260m
                                                                                                                capex for this year for maintenance and construction of a
Robust operating cash flow. Led by its strong revenue and                                                       warehouse. XIP’s acquisition of Songyu terminal and other
earnings growth, we expect operating cash flow to be robust in                                                  terminal assets may only occur in FY11F.
FY10F and FY11F. The increasing cash inflow from operation
will further strengthen its cash position and support future                                                    Stable dividend payout. XIP declared 66% dividend payout for
investments and acquisitions. Supported by its strong cash                                                      FY09, due to strong cash position and as it does not have large
position, we also expect XIP to pay down some debt as it did in                                                 direct capex plans. However, we expect the payout ratio to
the last two years.                                                                                             return to normal level of 30% for FY10F and FY11F.



                        Cash Flow Trend                                              Free Cash Flow Per Share                                                  Free Cash Flow As At Year End
         621
                                                                             0.22                                                                        500
         421
                                                                             0.17
         221                                                                                                                                             400
                                                                             0.12
          21
                                                                                                                                                         300
                                                                             0.07
         -179
                                                                             0.02                                                                        200
         -379

         -579                                                               (0.03)
                                                                                                                                                         100
         -779                                                               (0.08)
                2007A     2008A    2009A      2010F       2011F                      2007A       2008A          2009A      2010F        2011F

                CF from Op   CF from Invt   CF from Fin                              Free Cash Flow Per Share    Free Operating Cash Flow Per Share
                                                                                                                                                                 2007A   2008A   2009A    2010F   2011F




FY Dec                                                            2006A              2007A                               2008A                        2009A                      2010F                    2011F

Pre-Tax Profit                                                       505                  563                                  502                      311                       385                      443
Dep. & Amort.                                                       157                  185                                   197                      212                       233                      256
Tax Paid                                                             (80)                 (67)                                 (73)                     (41)                      (58)                     (80)
Assoc. & JV Inc/(loss)                                                (6)                  (4)                                  (2)                       (1)                       (2)                      (2)
Chg in Wkg.Cap.                                                    (130)                (258)                                    5                       50                       (54)                     (43)
Other Operating CF                                                   (22)                 (59)                                 (33)                     (23)                      (13)                     (14)
Net Operating CF                                                    369                  355                                   552                      505                       492                      561

Capital Exp.(net)                                                  (418)                (547)                                 (79)                     (195)                     (253)                    (279)
Other Invts.(net)                                                     57                    1                                    7                         0                         0                        0
Invts in Assoc. & JV                                                   0                   15                                    0                         0                         0                        0
Div from Assoc & JV                                                    3                    5                                    5                         2                         0                        0
Other Investing CF                                                 (218)                  347                                 (71)                        68                        14                       15
Net Investing CF                                                   (575)                (179)                               (138)                      (124)                     (239)                    (264)

Div Paid                                                               0                (176)                               (155)                      (150)                     (136)                      (74)
Chg in Gross Debt                                                  (335)                 416                                (343)                      (279)                     (100)                    (100)
Capital Issues                                                       189                    0                                    0                         0                          0                        0
Other Financing CF                                                 (153)                 (10)                                 (72)                        10                       (20)                     (24)
Net Financing CF                                                   (299)                 230                                (570)                      (420)                     (256)                    (198)

Net Cashflow                                                       (505)                   407                              (157)                       (38)                       (4)                      99
Opg CFPS (RMB cts)                                                  18.3                  22.5                               20.1                      16.7                       20.0                     22.2
Free CFPS (RMB cts)                                                 (1.8)                 (7.0)                              17.3                      11.4                        8.7                     10.4

Source: Company, DBS Vickers




                                                                                                                                                                                                     Page 117
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FINANCIALS – ROE DRIVERS

Net margin recovering, but higher tax rate. Given anticipated                                             Improved ROAE. We expect its asset turnover to edge up in
higher operating margins as a result of larger contribution from                                          FY10F and FY11F, given the steady revenue growth. Financial
its higher-margin port business, we forecast net margin will                                              leverage is expected to fall due to debt repayment. As a
recover to 11.2% in FY10F and 11.7% in FY11F.                                                             combined result of improved net margin, better asset turnover,
                                                                                                          and lower financial leverage, ROAE is forecasted to recover to
                                                                                                          6.4% in FY10F and 6.8% in FY11F. However, its ROAE is still
                                                                                                          the lowest among peers.

                 ROAE / ROAA Trend (%)                                                       Margin Trend (%)                                 Total Debt & Gross Interest Cover
         12.0%                                                                 30%
         11.0%
                                                                                                                                            1000
         10.0%                                                                 25%                                                                                                                               34.3x
         9.0%                                                                                                                                800
                                                                               20%                                                                                                                               29.3x
         8.0%
         7.0%                                                                  15%                                                           600
                                                                                                                                                                                                                 24.3x
         6.0%
         5.0%                                                                  10%                                                           400                                                                 19.3x
         4.0%
                                                                               5%                                                            200                                                                 14.3x
         3.0%
         2.0%                                                                  0%                                                             0                                                                  9.3x
                 2007A      2008A       2009A    2010F      2011F                    2007A        2008A    2009A     2010F     2011F               2007A   2008A        2009A          2010F          2011F
           Ret on Avg Equity (ROAE) %     Ret on Avg Assets (ROAA) %            EBITDA Margin %     EBIT Margin %   Net Income Margin %                      Total Debt (+)     Gross Interest Cover (X) (YoY)




FY Dec                                                                 2006A              2007A                         2008A             2009A                       2010F                                      2011F

Profitability Ratios
Sales Growth (%)                                                        32.6                  67.7                            18.0        (39.4)                        11.5                                        8.2
Gross Margin (%)                                                        35.2                  22.2                            17.9         21.2                         26.8                                       30.4
Operating Margin (%)                                                    25.3                  16.9                            13.5         14.9                         16.8                                       17.6
Net Profit Margin (%)                                                   16.3                  13.0                            11.0           9.9                        10.8                                       11.0
Financial Leverage (x)                                                 142.0                 158.8                           140.1        136.7                        133.8                                      130.4
Tax Retention Rate (%)                                                  81.4                  89.9                            94.5         87.3                         85.0                                       82.0
Sustainable Growth (%)                                                   3.4                   6.3                             6.2          1.8                          4.4                                        4.7
ROAE (%)                                                                 9.1                  10.8                            10.3          5.4                          6.3                                        6.7
ROA (%)                                                                  4.9                   5.8                             5.5          3.1                          3.8                                        4.1
ROCE (%)                                                                 7.4                   8.3                             7.8          4.9                          6.1                                        6.5

Activity Ratios
Debtors Turn (average days)                                             85.6                  62.8                            55.5         95.6                         99.1                                      100.5
Creditors Turn (average days)                                          203.3                 143.2                           106.6        159.2                        178.4                                      179.0
Inventory Turn (average days)                                           38.3                  46.0                            37.6         34.8                         34.8                                       34.9
Total Asset Turnover (x)                                                 0.3                   0.4                             0.5          0.3                          0.3                                        0.4
Fixed Asset Turnover (x)                                                 0.5                   0.7                             0.8          0.5                          0.5                                        0.6
Asset Replacement Ratio (x                                               3.1                   3.4                             0.5          1.1                          1.2                                        1.2

Source: Company, DBS Vickers




Page 118
                                                                                                                                China Port Sector
                                                                                                                            Xiamen Int’l Port




VALUATIONS                                                                  among peers and concerns on the heated competition in the
                                                                            port of Xiamen. Potential catalysts for re-rating include the
Initiate coverage with HOLD rating and HK$1.56 TP. Our target               future terminal acquisitions from parent to enhance its
price is based on SOTP valuation method. It translates into                 competitive edge and operating scale. Management also
17.2x FY10F P/E and 1.1x PEG, and 0.9x FY10F P/BV valuation.                indicated they may exit from low margin building material
The PB discount to peers is mainly due to the lowest ROE                    business and trading business.

SOTP Valuation

                                                Value             Value/share         Implied
                                              (RMB m)             (HK$/share)        FY10F PE                                     Comments
 Container terminal                              1,489                   0.63               9.2          DCF, WACC 9.9%, terminal growth 3%
 Bulk terminal                                      238                  0.10           112.9            DCF, WACC 9.9%, terminal growth 3%
 Port related                                    1,356                   0.57            10.0                            10x forward earnings
 Non-port assets                                    146                  0.06            10.0                            10x forward earnings
 Net cash                                           285                  0.12                                FY09 book value, minus dividends
 AFS investment & investment property               188                  0.08                                                   FY09 book value
 Total                                           3,702                   1.56

 No of shares (m)                                2,726
 Exchange rate (RMB/HK$)                            1.15

Source: Bloomberg, exchange rate closing @ Jul 14, 2010, DBS Vickers




Peers Valuation Table

                                              Cur                                      PE                         ROE                    PB
                                             Mkt
                                                            Px
 Company                         Ticker       Cap                    PEG
                                                           Last               09Y      10Y        11Y      09Y    10Y    11Y     09Y    10Y       11Y
                                             (US$
                                              m)
 H-share ports ^                                                      0.8     16.5    14.5        12.8      7.8    9.4    9.3     1.2    1.2      1.2
 China Merchants Holdings         144.HK      8,360        26.70      1.1     20.1    19.5        16.7     10.1    9.7   10.7     1.9    1.8      1.7
 COSCO Pacific                   1199.HK      3,419         9.80      0.3     16.5     9.6        11.0      6.5   10.6    8.5     1.0    0.9      0.9
 Dalian Port PDA                 2880.HK      1,216         3.23      0.9     13.5    12.3        10.5      9.3   10.1   11.4     1.2    1.2      1.1
 Xiamen Int'l Port               3378.HK        488         1.39      0.8     16.1    13.3        12.0      5.4    6.3    6.7     0.9    0.8      0.8
 Tianjin Port Dev                3382.HK      1,355         1.71      NA       NA     17.7        14.1      NA    10.5    9.3     0.9    1.4      1.3
 A-share container ports                                              NA      20.7    18.9        17.2     12.7   12.3   12.8     2.6    2.4      2.3
 Shenzhen Chiwan Wharf         000022.CH      1,115        12.19      NA      17.7    15.5        13.9     15.4   16.5   16.7     2.7    2.5      2.3
 Shenzhen Yantian Port         000088.CH      1,154         6.28      NA      17.5    17.0        15.8     11.0    9.9    9.6     1.9    1.7      1.8
 Shanghai Int'l Port Group     600018.CH     12,115         3.91      NA      21.5    18.7        17.5     11.7   13.0   13.3     2.6    2.4      2.2
 A-share bulk ports                                                   NA      38.8    24.8        20.7      7.9    9.3   10.4     2.4    2.2      1.9
 Tianjin Port                  600717.CH      2,015         8.15      NA      16.9    16.2        13.8      8.0    7.4    8.0     1.4    1.3      1.3
 Rizhao Port                   600017.CH      1,235         5.54      NA      22.4    16.8        14.4      9.1   12.2   13.0     2.0    1.8      1.7
 Jiangsu Lianyungang Port      601008.CH        443         5.58      NA      31.9    22.3        18.2      5.7    7.4    9.4     1.9    1.6      1.5
 Xiamen Port Development       000905.CH        567         7.24      NA      38.1     NA          NA       NA     NA     NA      NA     NA       NA
 Beihai Beihai Port            000582.CH        228        10.89      NA       NA      NA          NA       NA     NA     NA      NA     NA       NA
 Yingkou Port Liability        600317.CH        975         6.02      NA      31.5    29.1        24.8      6.2    6.3    7.8     2.0    1.8      1.8
 Nanjing Port                  002040.CH        278         7.65      NA       NA      NA          NA       NA     NA     NA      NA     NA       NA
 Chongqing Gangjiu             600279.CH        372        11.02      NA      61.2    38.7        31.9      NA     NA     NA      NA     3.1      NA
 Wuhu Port                     600575.CH        832        15.84      NA      78.4    20.8        18.1     10.6   13.4   13.7     4.5    3.2      3.1
 Jinzhou Port                  600190.CH      1,025         4.71      NA      30.0    29.4        23.6      NA     NA     NA      NA     NA       NA
 Tangshan Port                 600100.CH      1,154          7.8      0.7      NA     23.4        18.1      NA    10.1   12.4     NA     2.1      1.9

Source: Bloomberg closing @ Jul 14, 2010, ^ DBS Vickers




                                                                                                                                              Page 119
China Port Sector
Xiamen Int’l Port



                                                                                                                                                        and neighbouring areas, and iii) its smallest size among peers
Cheapest among peers. Currently, XIP is trading at 0.8x FY10
                                                                                                                                                        after TPD’s acquisition of TPC, in terms of operating scale and
P/BV, the cheapest among peers. The low valuation prescribed
                                                                                                                                                        market capitalization, and it has lower liquidity.
by the market is primarily attributed to: i) its lowest ROE
among peers, ii) intensifying competition in the Xiamen hub

PE chart                                                                                                                                               PB chart


 x                                                                                                                                                      x
 25                                                                                                                                                     3.0

 20                                                                                                                                                     2.5

                                                                                                                                                        2.0
 15
                                                                                                                                                        1.5
 10
                                                                                                                                                        1.0
  5                                                                                                                                                     0.5

  0                                                                                                                                                     0.0
       Jan-06
                May-06
                           Sep-06
                                        Jan-07
                                                    May-07
                                                             Sep-07
                                                                      Jan-08
                                                                                May-08
                                                                                             Sep-08
                                                                                                         Jan-09
                                                                                                                  May-09
                                                                                                                           Sep-09
                                                                                                                                     Jan-10
                                                                                                                                              May-10




                                                                                                                                                                Jan-06
                                                                                                                                                                         May-06
                                                                                                                                                                                  Sep-06
                                                                                                                                                                                              Jan-07
                                                                                                                                                                                                           May-07
                                                                                                                                                                                                                     Sep-07
                                                                                                                                                                                                                              Jan-08
                                                                                                                                                                                                                                        May-08
                                                                                                                                                                                                                                                    Sep-08
                                                                                                                                                                                                                                                                 Jan-09
                                                                                                                                                                                                                                                                           May-09
                                                                                                                                                                                                                                                                                    Sep-09
                                                                                                                                                                                                                                                                                             Jan-10
                                                                                                                                                                                                                                                                                                       May-10
Source: Bloomberg, DBS Vickers                                                                                                                         Source: Bloomberg, DBS Vickers




PE band chart                                                                                                                                          PB band chart


 Share Price (HK$)                                                                                                                                      Share Price (HK$)
 3.5                                                                                                                                                    4.0
 3.0                                                                                                                                                    3.5                                                                                                                                           2.1x

 2.5                                                                                                                                                    3.0
                                                                                                                                              21x                                                                                                                                                     1.7x
                                                                                                                                                        2.5
 2.0
                                                                                                                                              17x       2.0                                                                                                                                           1.2x
 1.5
                                                                                                                                              13x       1.5
 1.0                                                                                                                                                                                                                                                                                                  0.8x
                                                                                                                                              9x        1.0
 0.5                                                                                                                                          5x        0.5                                                                                                                                           0.3x
 0.0                                                                                                                                                    0.0
       Dec-05

                  May-06

                               Oct-06




                                                                                                                                                              Dec-05
                                                 Mar-07




                                                                                                                                                                         May-06

                                                                                                                                                                                     Oct-06
                                                                                                      Nov-08



                                                                                                                            Sep-09




                                                                                                                                                                                                       Mar-07
                                                             Aug-07

                                                                       Jan-08

                                                                                    Jun-08




                                                                                                                                                                                                                    Aug-07

                                                                                                                                                                                                                               Jan-08

                                                                                                                                                                                                                                           Jun-08

                                                                                                                                                                                                                                                             Nov-08



                                                                                                                                                                                                                                                                                    Sep-09
                                                                                                                  Apr-09




                                                                                                                                                                                                                                                                          Apr-09




Source: Bloomberg, DBS Vickers                                                                                                                         Source: Bloomberg, DBS Vickers




Page 120
                                                                                                                China Port Sector
                                                                                                               Xiamen Int’l Port



Appendix 1: Key Management Team
Manager                 Current                                                                                   Previous Experience
                   Appointment
Zheng Yongen         Chairman &        Graduated in 1982 from Tianjin University with a bachelor’s degree in port engineering and is a
                       Executive                                                                                     Senior Engineer.
(52)                    Director
                                                                  Held various positions at Xiamen Port Holding since September 1982.
                                     Has been appointed as an Executive Director, Chairman and legal representative of XIP on 10 April
                                                                                                                                2007.
                                          Was the general manager of Xiamen Port Holding from July 2005 to January 2007 and acts as
                                                                             Chairman of Xiamen Port Holding since February 2007.

Chen Dingyu              Deputy            Graduated in 1999 from the Central Party School with a bachelor’s degree in economics and
                     Chairman &                                                                     management and is an Engineer.
(53)                   Executive
                        Director                Held various positions at Xiamen Harbour Bureau and Xiamen Port Holding Since 1980.
                                          Has been a Director of Xiamen Port Holding since January 2005, the deputy Chairman and an
                                                                                           Executive Director of XIP since March 2005.
                                                               Was also general manager of Xiamen Port Holding since February 2007.

Fang Yao               Executive              Graduated in 1982 from Shanghai Shipping Institute with a bachelor’s degree in harbour
                    Director and                                                               engineering and is a Senior Engineer.
(50)                 the general
                        manager        Held various positions at Xiamen Harbour Bureau and Xiamen Port Holding since October 1982.
                                                     Has been an Executive Director and the general manager of XIP since March 2005.

Huang Zirong           Executive Graduated in August 1983 from Shanghai Jiaotong University with a bachelor’s degree in mechanics
                    Director and       and obtained a master of business administration degree from the School of Management of
(47)                 the deputy                                          Xiamen University in October 2000 and is a Senior Engineer.
                         general
                        manager              Held various positions in Xiamen Harbour Bureau and Xiamen Port Holding Since 1983.
                                       Has been the general manager of Xiamen Haitian Company since March 2002, and an Executive
                                                                   Director and a deputy general manager of XIP since March 2005.

Hong Lijuan             Executive      Graduated from Xiamen University with a bachelor’s degree in chemistry in 1985 and a master’s
                     Director, the                                                            degree in science in 1988 respectively.
(46)              deputy general
                   manager and       Studied at a graduate MBA course at the graduate school of Xiamen University from October 1998
                    the Secretary                                                                                      to May 2002.
                                                                                                                   A Senior Engineer.
                                                Held various positions at Xiamen Harbour Bureau and Xiamen Port Holding Since 1988.
                                         Has been the Secretary to the Board since March 2005, a deputy general manager of XIP since
                                                                     November 2006, and an Executive Director of XIP since June 2007.

Source: Company




                                                                                                                             Page 121
China Port Sector
Xiamen Int’l Port

Appendix 2: Layout of Xiamen Hub




                                             Xiamen

                                                                                    Liuwudian


             Zhangzhou                                      Dongdu



                                     Haicang


                                                  Songyu                Passenger




           Shima
                                                Zhaoyin




                                         China Merchants
                                         Zhangzhou             Houshi
                                         Development Zone




Source: Xiamen Port Authority, DBS Vickers




Page 122
                                                                                                                              China Port Sector
                                                                                                                             Xiamen Int’l Port
Income Statement (RMB m)                                                     Balance Sheet (RMB m)
FY Dec                           2008A      2009A       2010F      2011F     FY Dec                         2008A      2009A         2010F        2011F
Turnover                          3,412      2,066      2,303      2,492     Net Fixed Assets               4,309       4,209           4,233      4,260
Cost of Goods Sold               (2,800)    (1,628)    (1,685)    (1,736)    Invts in Assocs & JVs             35          35              36         38
Gross Profit                        612        438        618        756     Other LT Assets                  153         298             294        289
Other Opg (Exp)/Inc                (151)      (131)      (231)      (317)    Cash & ST Invts                1,031         938             935      1,034
Operating Profit                    461        307        387        439     Inventory                        133         137             140        143
Other Non Opg (Exp)/Inc               46         16          0          0    Debtors                          491         591             659        713
Associates & JV Inc                    2          1          2          2    Other Current Assets             382         338             338        338
Net Interest (Exp)/Inc                (6)      (14)         (4)         2    Total Assets                   6,534       6,546           6,635      6,814
Exceptional Gain/(Loss)                 0         0          0          0
Pre-tax Profit                      502        311        385        443     ST Debt                          303         116              66         16
Tax                                 (28)       (40)       (58)       (80)    Other Current Liab             1,034       1,192           1,210      1,223
Minority Interest                    (98)       (66)       (80)       (89)   LT Debt                          361         269             219        169
Preference Dividend                     0         0           0         0    Other LT Liabilities             173         182             182        182
Net Profit                          377        205        248        275     Shareholder’s Equity           3,744       3,871           3,982      4,183
Net profit before Except.           377        205        248        275     Minority Interests               920         917             977      1,041
                                                                             Total Cap. & Liab.             6,534       6,546           6,635      6,814
EBITDA                              705         536       622        697
Sales Gth (%)                      18.0      (39.4)      11.5        8.2     Non-Cash Wkg. Cap                (27)      (126)            (73)       (30)
EBITDA Gth (%)                     (4.4)     (24.0)      16.0       12.1     Net Cash/(Debt)                  367         554            650        849
Opg Profit Gth (%)                 (5.5)     (33.3)      26.1       13.4
Effective Tax Rate (%)              5.5        12.7      15.0       18.0
Cash Flow Statement (RMB m)                                                  Rates & Ratios
FY Dec                           2008A      2009A       2010F      2011F     FY Dec                         2008A      2009A         2010F        2011F
Pre-Tax Profit                       502        311        385        443    Gross Margin (%)                17.9        21.2            26.8       30.4
Dep. & Amort.                        197        212        233        256    Opg Profit Margin (%)           13.5        14.9            16.8       17.6
Tax Paid                             (73)       (41)       (58)       (80)   Net Profit Margin (%)           11.0         9.9            10.8       11.0
(Pft)/ Loss on disposal of FAs       (44)        (1)          0          0   ROAE (%)                        10.3         5.4             6.3        6.7
Assoc. & JV Inc/(loss)                (2)        (1)        (2)        (2)   ROA (%)                          5.5         3.1             3.8        4.1
Non-Cash Wkg.Cap.                      5         50        (54)       (43)   ROCE (%)                         7.8         4.9             6.1        6.5
Other Operating CF                   (33)       (23)      (13)        (14)   Div Payout Ratio (%)            39.8        66.5            30.0       30.0
Net Operating CF                    552        505        492        561     Interest Cover (x)              75.8        22.7           101.0        N/A
Capital Exp.(net)                    (79)     (195)      (253)      (279)    Asset Turnover (x)               0.5         0.3             0.3        0.4
Other Invts.(net)                       7          0          0          0   Debtors Turn (days)             55.5        95.6            99.1      100.5
Invts in Assoc. & JV                    0          0          0          0   Creditors Turn (days)          106.6       159.2           178.4      179.0
Div from Assoc & JV                    5           2         0          0    Inventory Turn (days)           37.6        34.8            34.8       34.9
Other Investing CF                   (71)         68        14         15    Current Ratio (x)                1.5         1.5             1.6        1.8
Net Investing CF                   (138)      (124)      (239)      (264)    Quick Ratio (x)                  1.1         1.2             1.2        1.4
Div Paid                           (155)      (150)      (136)        (74)   Net Debt/Equity (X)            CASH        CASH            CASH       CASH
Chg in Gross Debt                  (343)      (279)      (100)      (100)    Capex to Debt (%)               12.0        50.6            88.9      150.8
Capital Issues                         0           0         0          0    Z-Score (X)                    CASH        CASH            CASH       CASH
Other Financing CF                   (72)        10        (20)       (24)   N.Cash/(Debt)PS (RMB)            0.2         0.2             0.3        0.4
Net Financing CF                   (570)      (420)      (256)      (198)    Opg CFPS (RMB)                  0.23        0.19            0.23       0.25
Net Cashflow                       (157)       (38)         (4)        99    Free CFPS (RMB)                  0.20       0.13            0.10       0.12
Interim Income Statement (RMB m)                                             Segmental Breakdown (RMB m)
FY Dec                        1H2008        2H2008     1H2009     2H2009     FY Dec                                   2008A 2009A         2010F   2011F
Turnover                          2,015      1,397         916     1,150     Revenues
Cost of Goods Sold               (1,668)    (1,132)      (722)     (906)      Container loading/unloading/storage       742       631       724      788
Gross Profit                        347        265        193        244      Bulk/general cargo loading/unloading      143       122       139      154
Other Oper. (Exp)/Inc                (77)       (74)       (66)      (65)     Ancillary value-added port services       531       493       552      618
Operating Profit                    270         191       127        180      Manufacturing and selling of building     284       283       297      312
Other Non Opg (Exp)/Inc                 6        39           1       14      Others                                  1,712       537       591      620
Associates & JV Inc                    1           1         1         1     Total                                    3,412     2,066     2,303    2,492
Net Interest (Exp)/Inc                (3)        (3)        (6)       (7)    Operating Profit
Exceptional Gain/(Loss)              N/A        N/A        N/A       N/A      Container loading/unloading/storage      323       180        217     236
Pre-tax Profit                      274         228       123        188      Bulk/general cargo loading/unloading       3        (5)         3       5
Tax                                  (16)       (12)       (16)      (24)     Ancillary value-added port services      153       131        149     179
Minority Interest                    (61)       (36)       (25)      (41)     Manufacturing and selling of building      6          9        10      10
Net Profit                          197         180         82       123      Others                                    22         8          8       9
Net profit bef Except.               197        180         82       123     Total                                     506       323        387     439
EBITDA                               375        330        235       301     Operating Profit Margins
                                                                              Container loading/unloading/storage      43.5      28.5      30.0     30.0
Sales Gth (%)                      91.2      (24.0)     (54.6)     (17.6)     Bulk/general cargo loading/               1.8      (4.4)      2.0      3.0
EBITDA Gth (%)                      7.7      (15.3)     (37.4)       (8.7)    Ancillary value-added port services      28.8      26.6      27.0     29.0
Opg Profit Gth                      8.4      (20.0)     (52.8)      (5.8)     Manufacturing and selling of building     2.3       3.3       3.3      3.3
Net Profit Gth (%)                 14.8      (11.4)     (58.2)     (31.6)     Others                                    1.3       1.4       1.4      1.4
Gross Margins (%)                  17.2        18.9      21.1       21.2     Total                                     14.8      15.6      16.8     17.6
Opg Profit Margins (%)             13.4        13.7       13.9       15.6
Net Profit Margins (%)              9.8        12.9        9.0      10.7




                                                                                                                                                Page 123
China Port Sector
Tianjin Port
Bloomberg: 3382 HK | Reuters: 3382.HK




HOLD HK$1.71 HSI : 20,561                                                                  Positive prospects priced in
(Initiate coverage)
Price Target : 12-Month HK$ 1.94
                                                                                           •     Tianjin Port is based in the up and coming Tianjin, which
Potential Catalyst: Rise of Binhai New Area and bonded port
                                                                                                 should attract huge investments
Analyst
Ken He +86 21 6888 3375
                                                                                           •     Shifting focus to non-containerised businesses after
ken_he@hk.dbsvickers.com                                                                         merger, with strong earnings turnaround

Paul YONG CFA +8621 6888 3372                                                              •     Business may be diluted by neighbouring port, and
paulyong@dbsvickers.com                                                                          valuations are not attractive; initiate coverage with
                                                                                                 HOLD rating and HK$1.94 TP.
Price Relative                                                                             Acquisition expands terminal portfolio and aids
          HK$                                                      Relative Index          earnings turnaround. Tianjin Port Development (TPD) is a
        9.80
                                                                              238
                                                                                           terminal operator in the port of Tianjin. The acquisition of
        8.80
        7.80
                                                                              188
                                                                                           Tianjin Port Co. in Feb 2010 expanded its terminal portfolio
        6.80
        5.80                                                                               and created a monopoly in the Tianjin hub. It also expanded
                                                                              138
                                                                                           its business mix to exclusive port ancillary services. Besides
        4.80
        3.80

                                                                                           port-related businesses, it is also involved in the sale of raw
        2.80                                                                  88
        1.80
        0.80
           2006             2007            2008           2009
                                                                           38
                                                                        2010               materials to raise non-containerised handling throughput.
            Tianjin Port (LHS)                     Relative HSI INDEX (RHS)
                                                                                           Aided by the expanded portfolio and a rebound in
                                                                                           throughput, we project earnings to strongly rebound to
Forecasts and Valuation                                                                    RMB596m in FY10F and grow to RMB745 in FY11F.
                                                                                           Binhai New Area should drive long term growth.
FY Dec (HK$ m)                          2008A          2009A       2010F           2011F   Following the acquisition, Tianjing Port has been benefiting
Turnover                                  1,221        1,370      13,585       14,561      from rising demand for raw materials and automobiles.
EBITDA                                      351           112      2,859        3,366
Pre-tax Profit                               181          (18)     1,662        2,069      National development plans for Binhai is expected to attract
Net Profit                                   130          (48)       596          745      huge investments and cargo traffic to Tianjin hub, and
Net Pft (Pre Ex.)                            156          (48)       596          745      should thus favour TPD. More of the Group’s business will
EPS (HK$)                                   0.07       (0.03)       0.10         0.12
                                                                                           come from non-container business such as steel, ore, oil and
EPS Gth (%)                               (45.8)      (136.7)        nm          25.0
Diluted EPS (HK$)                           0.09       (0.03)       0.10         0.12      coal.
DPS (HK$)                                   0.03         0.00       0.03         0.04
BV Per Share (HK$)                          2.02         2.01       1.26         1.34
                                                                                           Initiate coverage with HOLD. Our concern about
PE (X)                                      23.5           nm       17.7         14.1      increasing threat from neighbouring ports prompts us to
P/Cash Flow (X)                             12.0         33.8        7.8          6.7      initiate coverage of TPD with a HOLD rating, with a HK$1.94
P/Free CF (X)                               19.0           nm        nm          59.1      target price based on SOTP valuation. This translates into
EV/EBITDA (X)                               10.3         33.0        9.8          8.6
Net Div Yield (%)                            1.8           0.0       1.7          2.1      20.0x FY10F P/E and 1.5x FY10F P/BV. It is currently trading
P/Book Value (X)                             0.8           0.9       1.4          1.3      at 17.7x FY10F P/E and 1.4x FY10F P/BV, respectively, which
Net Debt/Equity (X)                          0.2           0.2       0.5          0.5      is higher than the sector’s average of 14.5x and 1.2x,
ROAE (%)                                     3.7         (1.3)      10.5          9.3
                                                                                           respectively.
Earnings Rev (%):                                                    New            New
Consensus EPS (HK$):                                                 0.11           0.13
                                                                                               At A Glance
                                                                                               Issued Capital (m shrs)                                 6,158
ICB Industry: Industrials                                                                      Mkt. Cap (HK$m/US$m)                            9,181 / 1,182
ICB Sector: Industrial Transportation                                                          Major Shareholders
Principal Business: Terminal operator in Tianjin port hub, providing                                Tianjin Port (Group) Co (%)                           53.5
container handling, stacking and warehousing, and non-                                         Free Float (%)                                             46.5
containerized cargo services.                                                                  Avg. Daily Vol.(‘000)                                     8,106
Source of all data: Company, DBSV, Bloomberg, HKEX




Page 124
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-SGC/ sa- DC
                                                                                                                            China Port Sector
                                                                                                                                 Tianjin Port




THE BUSINESS MODEL                                                        eastern ocean exit of the Eurasian Continental Bridge. Starting
                                                                          with bulk terminal operation in 1968, TPD expanded into
Located in Tianjin, neighbouring Beijing. Tianjin Port                    container terminal operation in 1980. TPD was listed on the
Development Holdings Ltd. (TPD) is a terminal operator in the             HKEx on 24 May 2006 with an IPO price of HK$1.88.
Tianjin hub, a maritime gateway to the capital, Beijing, and the


 TPD’s Structure Before Acquisition of TPC


                                                    Tianjin Commission                                Tianjin SASAC
                                                       of Commerce

                                                                100%                                            100%

                                                    Tsinlien Group Co.,                              Tianjin Port Group
                                                             Ltd.                                           (TPG)

                                                                53.40%

            Public                46.60%           Tianjin Development             0.20%                        53.50%
        H-share 882.HK                                 Holdings Ltd.

                                                                21%

            Public                25.30%         Tianjin Port Development
       H-share 3382.HK                                  Holdings Ltd.

                                                                               56.81%


                                                                                                          43.19%
        Tianjin Harbour Second Stevedoring Co., Ltd..(No.2 Co.)                   Tianjin Port Co.                              Public
        100%                                                                            (TPC)                             A-share 600717.CH
        Tianjin Port Container Terminal Co., Ltd. (TCT), 100%
        Tianjin Port Alliance International Container Terminal Co.,
        Ltd. (Alliance) 40%
        Tianjin Port Euroasia International Container Terminal Co.,
        Ltd. (Euroasia) 40%
        Tianjin Port Harbour Bonded Logistics Co., Ltd. (Haifeng)
        51%




 Source: Company, DBS Vickers


                                                                            Nanjiang (handling mainly liquid and dry bulk cargos). TPD is
Completed acquisition in Feb creates a monopoly in the port
                                                                            67.3% owned by Tianjin Development (882.HK), while TPC is
of Tianjin. Located at the west of Bohai Rim region, the port
                                                                            56.8% owned by Tianjin Port Group (TPG), which originated
of Tianjin is the largest man-made port in China, with a land
                                                                            from Tianjin Port Authority following a restructuring. Both
area of 47 km2. There are 4 port districts, including Beijiang,
                                                                            companies are ultimately owned by Tianjin Municipality
Nanjiang, Haihe, and Dongjiang. Dongjiang is the largest
                                                                            government.
bonded free port established in Aug 2006.
                                                                            With the aim of creating a terminal operation monopoly and
Before the acquisition, TPD’s major assets were concentrated                to avoid cannibalisation in the port of Tianjin, the local
in the Beijiang, which mainly handles container and dry bulk                government set out to consolidate the two companies in 2006.
cargos, while its A-share peer – Tianjin Port Co. (TPC,                     Speculation about a merger arose when the two companies
600717.CH) has a wider coverage in Dongjiang, Beijiang and




                                                                                                                                        Page 125
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started to have a common chairman in 1H07. Since Tianjin                 TPD announced it would acquire 56.8% stake in its A-share
Port has more assets and larger market capitalisation than TPD,          peer from Tianjin Port Group for a total consideration of
the market expected Tianjin Port to acquire TPD. But in 1H09,            c.HK$11bn. The deal was finalised in Feb 2010.


 Transaction Overview

  Important date               Announced on Mar16, 2009, completed on Feb05, 2010
  Acquiror                     TPD
  Vendor                       TPG
  Target                       56.81% equity interest in TPC (951.5125m shares)
  Transaction amount           HK$10,961m
  Consideration price          RMB10.152/share of TPC (implied 18.1x FY08 P/E, and 26.4x FY09 P/E)
  Consideration                HK$6,891m, by the issue of 3,294.53m consideration shares to TPG at HK$2.0916 ps
                               HK$4,070m in cash, by
                               (i) 986.502m placing shares at HK$2.50/share issued to placees and 89.868 option shares at HK$2.50
                               issued to Tianjin Development Holdings Ltd.,
                               (ii) HK$1,600m bank borrowings, and
                               (iii) internal and other resources

 Source: Company, DBS Vickers



Previous container focus


TPD’s Port-related Assets Before Acquisition of TPC

                                                                                        Terminal                          Designed
                                                                                                        Depth      Quay
                                                                                            land                           capacity
                                                                                                     alongside   length
                                                                                Berth       area                               (mn
                                                                                                           (m)      (m)
  Company          Category          Stake                           Partners     no.       (sm)                           mt/TEU)
  No.2 Co.         Bulk              100%                                 NA        7    340,000          11.0    1,757        18.0
                   Container         100%                                 NA       1                                            0.3
  TCT              Container         100%                                 NA       4    464,000           15.0    1,292         1.6
  Euroasia         Container          40%                 CP 30%, APMT 30%         3    700,000           15.5    1,100         1.8
  Alliance         Container          40%         OOCL 20%, APMT 20%, PSA          4    700,000           15.5    1,100         1.7
                                                                     20%
  HaiFeng          Logistics          51%         Mapletree Tianjin Free Port     NA    715,000            NA       NA    191,000sm
                                                               Development

 Source: Company, DBS Vickers

 CP: COSCO Pacific Ltd., APMT: A.P.Moller-Maserk Terminals, OOCL: Orent Oversea Container Line, PSA: PSA Corp. Ltd.




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                                                                                                              China Port Sector
                                                                                                                    Tianjin Port



Revenue Breakdown FY09
                                                                    50% market share of container business in Tianjin hub. TPD
                                                                    operates 12 berths in the port of Tianjin with aggregate
                                            Bulk cargo
                                                                    capacity of 5.4mn TEU. 5 berths with 1.9mn TEU designed
                                             handling
                                               32%                  annual capacity are operated by TPD’s subsidiaries. In early
                                                                    2008, it acquired 40% equity interest in Alliance (JV with
                                                                    shipping liners), which boosted TPD’s (including Alliance)
                                                   Storage          market share to 52% in FY08 - it fell to 49% in FY09.
                                                     and            Another JV – Euroasia – started operation early this year with
                                                   agency           4 berths and 1.8mn TEU designed capacity.
        Container                                    fees
        handling                                     2%             Increasing container handling business. Total container traffic
          42%                                                       (excluding Alliance) was 2.5mn TEU in FY09, which
                                                                    contributed to 42.2% of TPD’s revenue. Container
                                                                    throughput grew at 11% CAGR over FY04-FY08, but fell
                                           Sales                    10% in FY09. Meanwhile, container handling tariffs were
                                           24%
                                                                    maintained at HK$270/TEU during FY04-FY08, but slipped
                                                                    15% in FY09 due to the high proportion of empty and
Source: Company, DBS Vickers                                        domestic containers. Consequently, container handling
                                                                    revenue fell 24% y-o-y in FY09. TPD may raise handling tariff
                                                                    for domestic containers in FY10F.

Container Throughput & ASP (Excluded Alliance)                    Bulk Cargo Throughput & ASP


 mn TEU                                            HK$/TEU         mn mt                                             HK$/mt
 3.0                                                    350        20                                                     40
                                                                   18                                                        35
 2.5                                                     300
                                                                   16
                                                                                                                             30
                                                         250       14
 2.0
                                                                   12                                                        25
                                                         200
 1.5                                                               10                                                        20
                                                         150        8                                                        15
 1.0                                                                6
                                                         100                                                                 10
                                                                    4
 0.5                                                     50         2                                                        5
 0.0                                                     0          0                                                        0
        2004    2005    2006    2007    2008    2009                   2004      2005    2006     2007    2008     2009

               Throughput (LHS)         Tariff (RHS)                            Throughput (LHS)              Tariff (RHS)

Source: Company, DBS Vickers                                      Source: Company, DBS Vickers



Strategic alliances with shipping liners. TPD has formed two        Started with bulk cargo business. Its second stevedoring
container terminal JVs with leading container carriers and port     company commenced operation in 1968. Currently, it
conglomerates. Focusing on the domestic container business,         operates 7 berths in the port of Tianjin with 13.7mn mt actual
Alliance has been growing rapidly since its inception in Jul        throughput in FY09. Due to the cessation of coal handling
2007. TPD’s share of Alliance’s net profit rocketed 67.0% y-o-      business and a decline agriculture cargo, total bulk
y to HK$23m in FY09. However, total contribution from TPD’s         throughput handled by TPD had been falling since FY04, but
three JCEs (including Haifeng Logistics) was only HK$764,000        inched up in FY08 and FY09. However, the average handling
in FY09, down 91% y-o-y, due to pre-operating expenses and          tariff soared as the proportion of metal ore and steel handling
additional capital expenses at Euroasia and Haifeng.                volume boomed. As a result, bulk cargo handling revenue
                                                                    grew 3% y-o-y in FY09.




                                                                                                                             Page 127
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Logistics JV in the bonded free port. TPD and Mapletree          Major Cost Proportion
Group established a JV – HaiFeng - in Aug 2007 to co-develop
a logistics warehouse in Dongjiang Bonded Free Port. HaiFeng                                FY06        FY07       FY08        FY09
will be developed in several phases with a total GFA of           As % of total revenue
484,000 m2 or 37 blocks of warehouse space. Phase I with a        Staff costs               35%         34%         39%        33%
GFA of 190,000 m2 commenced operation in FY08 and                 Cost of                     0%         0%          0%        24%
                                                                  inventories
recorded a net loss of HK$28.7m in FY09. This was due to an
                                                                  D&A                       10%         10%         11%        10%
increase in expenses after 6 new warehouse blocks were
                                                                  Subtotal                  44%         45%         50%        67%
added in 2H09. Looking ahead, Haifeng is expected to be a
potential contributor with the upcoming development of the
                                                                  As % of total COGS and SG&A
largest bonded port.
                                                                  Staff costs               25%         28%         34%        32%
Sales business started in 1H09. In Jan 2009, TPD began            Cost of                     0%         0%          0%        23%
                                                                  inventories
providing back-to-back steel sales arrangement to its
                                                                  D&A                         7%         9%         10%        10%
customers, supported by its strong relationship with steel
                                                                  Subtotal                  32%         37%         43%        65%
suppliers. The arrangement will increase not only income from
sales, but also its bulk cargo throughput. In FY09, TPD          Source: Company, DBS Vickers
recorded HK$337m revenue and HK$8m net profit from sales
business. The sales business is expected to increase steel and   Staff costs pressure ahead. In Apr 2010, Tianjin municipality
metal ore bulk cargo throughput for its bulk cargo business.     raised the minimum wage threshold by 12%, which would
                                                                 directly or indirectly lift TPD’s staff costs. However, container
                                                                 terminals in the port of Tianjin have completed the
                                                                 transformation of port facilities from oil-powered to
                                                                 electricity-powered, which is expected to save costs amid
                                                                 rising oil prices. D&A is expected to remain stable as only
                                                                 HK$100m will be expensed for maintenance this year.




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                                                                                                                       China Port Sector
                                                                                                                               Tianjin Port



Acquisition to shift to bulk focus

 TPC’s Structure

                                                           Tianjin Port (600717.CH)




              Container Handling                       Non-containerized cargo handling                      Other Businesses
             (4.5m TEUs in 2009)                             (195.8mt in 2009)

                                                100%
     51%    Tianjin Orient Container Terminal              Tianjin Port Coke Terminal Co., Ltd.     100%        Tianjin Port Container
            Co., Ltd. (DP World 24.5%, NWS                                                                     Transportation Co., Ltd.
                         24.5%)                 100%
                                                         Tianjin Port No.1 Stevedoring Co., Ltd..   100%
                                                                                                             Tianjin Port Freight Co., Ltd.
     51%       Tianjin Port Pacific Int’l       100%
            Container Terminal Co., Ltd. (PSA            Tianjin Port No.4 Stevedoring Co., Ltd..
                         49%)                                                                       100%   Tianjin Ocean Shipping Tally Co.,
                                                100%                                                                     Ltd.
                                                         Tianjin Port No.5 Stevedoring Co., Ltd..
               Tianjin Five Continents Int’l
     40%     Container Terminal Co., Ltd.                                                           100%   Tianjin Port Tugboat Lighter Co.,
              (NWS 18%, China Shipping          100%      Tianjin Port Petrochemicals Terminal                            Ltd.
             Terminal Development 14%,                                   Co., Ltd.
                  CMHI 14%, CP 14%)
                                                                                                    60%     China Ocean Shipping Agency
                                                100%      Tianjin Port Passenger Transport Co.,                      Co., Ltd.
                                                                           Ltd.

                                                                                                    51%    Tianjin Haitian Bonded Logistics
                                                       Tianjin Port Ro-Ro Terminal Co., Ltd. &                         Co., Ltd.
                                                56.17% TPG Global Ro-Ro Terminal Co., Ltd.
                                                        (Nippon Yusen Kabushiki Kaisha Line         50%
                                                           37.44%, Wallenius Wilhelmsen                      China United Tally Co., Ltd.
                                                             Terminals North AB 6.39%)


                                                55%                                                 49%       Tianjin Port Labor Service
                                                         Tianjin Xingang Sinor Terminal Co., Ltd.              Development Co., Ltd.
                                                                    (GB Terminal 45%)

                                                51%
                                                         Tianjin Port China Coal Huaneng Coal       100%     CHIMBUSCO Marine Bunker
                                                          Terminal Co., Ltd. (China Coal 25%,                    (Tianjin) Co., Ltd.
                                                                  China Huaneng 24%)

                                                51%                                                 100%   Tianjin Port Goods and Materials
                                                           Tianjin Port Yuanhang Ore Terminal                     Supplying Co., Ltd.
                                                               Co., Ltd. (Ocean Line 49%)
                                                                                                                Sales businesses
                                                51%
                                                           Tianjin Port Yuanhang Bulk Cargo
                                                          Terminal Co., Ltd. (Ocean Line 49%)

                                                45%
                                                         Shenhua Tianjin Coal Terminal Co., Ltd.
                                                             (China Shenhua Energy 55%)


 Source: Company, DBS Vickers




                                                                                                                                           Page 129
China Port Sector
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More diversified businesses. TPC was listed on the Shanghai    services, tugboat services, logistics and other services. In terms
Stock Exchange in Jun 1996. Its business mix was enlarged      of port handling business, TPC registered similar container
gradually through organic means and acquisition of assets      throughput as TPD, but had much larger non-containerized
from TPG. Currently, TPC is involved in 5 major business       throughput than TPD.
segments - port cargo handling, sale of materials, agency

TPC’s Revenue Breakdown FY09                                  TPC’s Gross Profit Breakdown FY09


                                                                                                           Sales
    Sales                                                                                                   7%
    51%
                                             Tugging                                                               Tugging
                                               3%
                                              Tallying                                                               6%
                                                1%
                                               Agency                                                               Tallying
                                                 3%                                                                   3%
                                                   Other
                                                  services                                                          Agency
                                                    6%                                                               9%

                                                               Port cargo                                       Other
                                            Port cargo          handling                                       services
                                             handling             73%                                            2%
                                               36%


Source: Company, DBS Vickers                                  Source: Company, DBS Vickers




Non-containerized Cargo Throughput Comparison                 Container Throughput Comparison


 250    mn TEU                                                 5.0    mn mt
                                                               4.5
 200                                                           4.0
                                                               3.5
 150                                                           3.0
                                                               2.5
 100                                                           2.0
                                                               1.5
  50                                                           1.0
                                                               0.5
   0                                                           0.0
            2006       2007         2008         2009                   2006          2007          2008            2009
                         TPD               TPC                                          TPD             TPC

Source: Company, DBS Vickers                                  Source: Company, DBS Vickers




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                                                                                                                China Port Sector
                                                                                                                    Tianjin Port



 Summary of TPC’s Terminals (including Greenfield Projects)

                                                                               Designed        Net profit           Attributable
                                                                             capacity (mn       (RMB m)            profit (RMB m)
                                                                               TEU/mn         2008      2009        2008      2009
  Terminals                                 Category              Stake      mt/mn unit)
  Container
  Tianjin Orient Container                  Container              51%                1.4      95.7     54.5        48.8        27.8
  Tianjin Five Continents Int’l Container   Container              40%                1.5     112.8     82.3        45.1        32.9
  Tianjin Port Pacific Int'l Container      Container              51%                4.0    (51.6)    (99.2)      (26.3)      (50.6)
  Tianjin Port Shenghua Int'l Container^    Container              60%                1.7       NA       NA          NA          NA
  Subtotal                                                                            9.1     156.9     37.6        67.6        10.1
  Non-container
  Tianjin Port Coke                         Coke                  100%               10.5     128.5     44.6       128.5        44.6
  Tianjin No.1 Stevedoring                  Container and bulk    100%               10.0       6.9    (12.6)        6.9       (12.6)
  Tianjin No.4 Stevedoring                  Ore                   100%               10.0     (3.2)      3.6        (3.2)        3.6
  Tianjin No.5 Stevedoring                  Ore and others        100%               10.0      50.4     50.3        50.4        50.3
  Tianjin Port Petrochemicals               Oil and related       100%               18.9     159.1    110.4       159.1       110.4
  Tianjin Port Passenger Transport          Passenger             100%                NA        8.1      5.7         8.1         5.7
  Tianjin Port Ro-Ro                        Automobile             56%                0.5     111.9    116.1        62.8        65.2
  TPG Global Ro-Ro                          Automobile             56%                0.1    (23.0)    (41.5)      (12.9)      (23.3)
  Tianjin Xingang Sinor                     Steel and others       55%                0.6       6.1      4.5         3.4         2.5
  Tianjin Port China Coal Huaneng           Coal                   51%               43.0      11.9    (67.5)        6.1       (34.4)
  Tianjin Port Yuanhang Ore                 Ore                    51%               14.0      93.4    151.9        47.6        77.5
  Tianjin Port Yuanhang Bulk Cargo          Ore and steel          51%               20.0     112.7    201.7        57.5       102.9
  Shenhua Tianjin Coal                      Coal                   45%               45.0      10.8    (31.8)        4.9       (14.3)
  Tianjin Port Yuanhang Int'l Ore^          Ore                    51%               23.0       NA       NA          NA          NA


 ^ Under construction
 Source: Company, DBS Vickers


                                                                  (accounted for c.29% of China’s steel production), TPC’s steel
Container terminal troubled in the short run. TPC currently
                                                                  and metal ore business grew rapidly driven by booming steel
operates four container terminals with an annual capacity of
                                                                  demand as a result of huge infrastructure expenditure
7.4mn TEU (including No.1 Stevedoring and Tianjin Five
                                                                  nationwide. We expect its steel and iron ore businesses to
Continent Int’l Container). Tianjin Port Pacific Int’l, which
                                                                  continue to grow rapidly as Tianjin Binhai New Area is looking
officially commenced operation early this year, is the first
                                                                  to develop an equipment manufacturing base.
container terminal in the bonded area of Tianjin hub. Net
earnings from TPC’s container business tumbled in FY09 due to
the rising number of domestic and empty containers. However,      Steel Throughput at Major Ports FY09
as Tianjin aims to be an international shipping hub in northern
China, we expect its container operation to improve along with     Port                               Throughput (mn mt)
the expanded bonded port.
                                                                   Tianjin                                             23.0

Earnings primarily from general/bulk cargo handling. TPC’s net     Yinkou, Liaoning                                    19.9
earnings came mainly from its non-containerised cargo              Tangshan Jingtang, Hebei                            12.3
handling business, which accounted for 51% and 59% of             Source: MOT, DBS Vickers
FY08 and FY09 group earnings, respectively. Steel, iron ore,
and coal are the flagship cargos of TPC, and accounted for a
large portion of net profits.

Largest port in terms of steel throughput. Located at the
largest steel production base, Beijing-Tianjin-Hebei area




                                                                                                                              Page 131
China Port Sector
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Future support from TPG. As a subsidiary of TPG, TPD (or
                                                                       Steel Production Breakdown by Major Provinces FY09
through TPC) is expected to acquire terminal assets from TPG,
including a completed 300,000 DWT crude oil terminal project
                                                                                                                  Beijing-
and another 300,000 DWT crude oil terminal that is under
                                                                                                                  Tianjin
construction. In addition, its ability to source for financing from        Others                                   7%
both the A-share and H-share markets will support further                   45%
asset injections by TPG.
                                                                                                                       Hebei
                                                                                                                       22%




                                                                                                                Shangdon
                                                                                 Liaoning          Jiangsu          g
                                                                                    7%               11%           8%


                                                                       Source: CEIC, DBS Vickers




Iron Ore Throughput at Major Ports FY09                               Coal Throughput at Major Ports FY09

 Ports                                Throughput (mn mt)               Ports                            Throughput (mn mt)
 Rizhao, Shandong                                      92.0            Qinhuangdao, Hebei                            200.8
 Qingdao, Shandong                                     85.1            Huanghua, Hebei                                78.5
 Tianjin                                               83.8            Tianjin                                        53.6
 Tangshan Caofeidian, Hebei                            57.4            Tangshan Jingtang, Hebei                       39.8
 Ningbo, Zhejiang                                      42.8            Jinzhou, Liaoning                              15.9
 Zhoushan, Zhejiang                                    32.9            Rizhao, Shandong                               11.6
 Lianyungang, Jiangsu                                  28.5            Qingdao, Shandong                              11.4
 Shanghai                                              28.1            Yingkou, Liaoning                               9.1
 Tangshan Jingtang, Hebei                              26.8            Lianyungang, Jiangsu                            7.1
 Zhanjiang, Guangxi                                    25.9

Source: Company, DBS Vickers                                          Source: Company, DBS Vickers




Page 132
                                                                                                                                                             China Port Sector
                                                                                                                                                                       Tianjin Port



GROWTH PROSPECTS                                                                      the area in 2009. In addition, Airbus opened its first logistics
                                                                                      centre in Tianjin (temporary site in the Tianjin port bonded area)
Riding on Tianjin Binhai New Area. The Tianjin Binhai Coastal                         in Oct 2009, and the centre started operation early this year.
Area is designated to be incorporated into China’s overall                            By now, many big names including Coca Cola, GSK, Honeywell,
development strategy following the successful Shenzhen                                Motorola, Samsung, Toyota, IBM, John Deere, Airbus and
Special Economic Zone and Shanghai Pudong New Area.                                   Kodak, have settled in the area.
Currently, 120 Fortune 500 companies have invested in over
230 projects with direct foreign investment of over US$ 30bn                          Shenzhen Special Economic Zone and Shanghai Pudong New
going into the Binhai New Area. An aircraft manufacturing                             Area were driving and continue to drive the economic growth
industrial chain has been formed in the area following the                            of Pearl River Delta region and Yangyze River Delta region
setting up of Airbus’s assembly base in 2006, and the first                           respectively. We expect Binhai New Area to be the growth
successful test flight of an Airbus 320 plane was conducted in                        engine of Bohai Rim region, which should benefit TPD.


GDP Growth of the Two Special Areas                                                  Historical and Forecast of Total Throughput in Tianjin Hub



             Shenzhen Special Economic                                                mn mt
 70                                                                                   700
             Zone approved in 1980.
 60                                        Shanghai Pudong New                        600
 50                                        Area approved in 1992.
                                                                                      500
 40
                                                                                      400
 30
                                                                                      300
 20
                                                                                      200
 10
                                                                                      100
  0
      1980

               1983

                      1986

                             1989

                                    1992

                                              1995

                                                     1998

                                                            2001

                                                                   2004

                                                                            2007




                                                                                        0
                                                                                              2000
                                                                                                     2001
                                                                                                            2002
                                                                                                                   2003
                                                                                                                          2004
                                                                                                                                 2005
                                                                                                                                        2006
                                                                                                                                               2007
                                                                                                                                                      2008
                                                                                                                                                             2009
                                                                                                                                                                    2010F*
                                                                                                                                                                             -
                                                                                                                                                                                 2020F*
             Nation average                   Shanghai                    Shenzhen

Source: CEIC, DBS Vickers                                                            Source: CEIC, DBS Vickers, * forecasted by Tianjin Port Group




Dongjiang aims to be the largest bonded free port with                                The port of Tianjin is the third largest port in China and the
comprehensive functions. The Dongjiang Bonded Free Port is                            largest port in Northern China in terms of total throughput.
the largest bonded free port in China with an area of about 10                        Over 60 shipping liners have developed more than 100
km2. The port is designed to provide a full range of services,                        shipping routes that connect Tianjin to over 400 ports in more
including container handling, logistics, business support                             than 180 countries and regions. Following the government’s
services, accommodations, leisure and travel.                                         incentive policy, the port of Tianjin is expected to be developed
                                                                                      into the international shipping and logistics centre for the
Well connected with vast hinterland. The port of Tianjin serves                       northern regions of China. The TPG forecasts total throughput
a vast hinterland covering 14 provinces, municipalities and                           handled in the Tianjin hub to exceed 400mn mt in 2010
autonomous regions. It is also the east end of the Eurasian                           (including 10mn TEU) and 600mn mt by 2020.
Continental Bridge, and serves as a strategic port for Mongolia.
Multiple road and railway networks link the hinterland and                            Potential acquisition of crude oil terminal. The first 300,000
Tianjin. In addition, Tianjin is one of the 18 designated railway                     DWT crude oil terminal in the port of Tianjin commenced
container connection hubs under the national plan, which                              operation last year. TPC is expected to acquire the terminal
should bring more sea-rail joint transportation businesses to                         from TPG by the end of this year, which could add RMB10m
TPD.                                                                                  net profit to TPC. We expect the crude oil terminal to benefit
                                                                                      from the rising refinery capacity in Tianjin and Beijing. With




                                                                                                                                                                                   Page 133
China Port Sector
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10mn mt new capacity added in May 2010, Sinopec has a total         Another big threat is the rise of Tangshan Caofeidian port, a
refinery capacity of 25.5mn mt in Tianjin and Yanshan. A JV         natural deep-water port (-25 - -30m) located northeast of
between PetroChina and Russian OAO Rosneft will add 10mn            Tianjin port. SDIC Caofeidian Port Co., Ltd. is planning a three-
mt refinery capacity in Tianjin in 2012.                            phase construction of four 250th DWT ore terminals, three 300
                                                                    th DWT crude terminals, one LNG terminal, and 16 coal
In addition, oil refiners have also been accelerating the buildup   terminals. These will have designed capacities of 60mn mt ore,
of oil reserves in Tianjin. Sinopec has started construction of a   54mn mt crude, 6mn mt LNG, and 200mn mt coal by 2030.
commercial crude reserve base with a capacity of 3.2mn m3,          Phase I with 50mn mt coal and 30mn mt ore capacities is
while PetroChina has started work on an oil reserve base in         expected to start operation this year, which could divert some
Tianjin Binhai New Area.                                            coal and iron ore business from TPC.

We expect TPC to acquire the first crude oil terminal from TPG      Hebei is the largest steel production base with 21.9% share of
by this year, although valuations have yet to be discussed. In      China’s total steel production. The rapid development of
addition, TPG is constructing another large-scale crude oil         coastal ports in Hebei could dilute TPC’s steel and iron ore
terminal that is also expected to be injected into TPC in the       businesses. In addition, a large steel manufacturer – Shougang
future.                                                             Group - is expected to complete its relocation to Tangshan
                                                                    Caofeidian, Hebei from Beijing by end 2010, which would
Key Risks                                                           further dilute TPC’s steel and iron ore businesses.

Business could be diluted by coastal ports in Hebei province.       Steel-related business could suffer from removal of export
Hebei Port Group was established in Jul 2009, with the              rebates. The steel industry has already suffered from rising iron
intention to consolidate port resources and construct a             ore prices and falling steel prices. On Jun 2010, China
complex transport system in the coastal region of Hebei. In         government decided to remove steel export rebates (9-13%
addition, Tangshan Port Group Co. was listed in the A-share         previously), which may further depress the steel sector. This
market on Jun 18, 2010, raising RMB1.6bn to construct a             could likely indirectly affect TPD’s steel and iron ore handling
general bulk/steel terminal that is expected to be completed by     businesses.
end-2010. Qinhuangdao port, the largest coal port in China,
also plans to list in the domestic market to raise RMB5bn in
2010.




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SEGMENTAL ANALYSIS                                                 from TPC is estimated at RMB3,844m and RMB4,209m
                                                                   respectively.
Port handling business picking up as economy recovers. A large
portion of international container business is moving to TPC’s     TPD’s operating margin for its port handling business was
new container terminal in the bonded port area. Hence, we          dragged down by project expenses related to the acquisition of
estimate container throughput will grow 1% in FY10F and 5%         TPC in FY09. Excluding HK$65m acquisition related fees,
in FY11F at previous TPD’s container terminal and 15% at TPC’s     operating profit margins for TPD’s port handling business was
container terminal in each of FY10F and FY11F. We also project     only 3.0%, down 13.4ppt from FY08 due to the increasing
flat container handling tariff for previous TPD’s terminals and    portion of empty and domestic containers. But we expect
3% and 1% increase in container handling charge in FY10F and       margins to improve as global demands recovers.
FY11F for TPC’s terminals.                                         Port ancillary revenue should grow in line with port handling
                                                                   business. Segmental operating margin is expected to improve
Non-container throughput is forecast to grow 6-7% in FY10F         with the upcoming development of the largest bonded port.
and FY11F, respectively, driven by continuous demand for raw
                                                                   Stable margin for sales business. We project the sales business
materials and automobiles. Blended handling tariff is projected
                                                                   to grow 10% in FY10F and 5% in FY11F, with stable operating
to increase by 2% in each of FY10F and FY11F, as the high-
                                                                   margins.
tariff steel business picks up along with a recovering economy.
                                                                   The total revenue for the enlarged TPD is forecasted to
As such, port handling revenue from previous TPD is estimated      HK$13,585m and HK$14,561m in FY10F and FY11F
                                                                   respectively, while operating profit is estimated to HK$1,781m
at HK$1,078m for FY10F and HK$1,141m for FY11F, while that
                                                                   and HK$2,182m respectively.

Segmental Analysis (Previous TPD Assets)

FY Dec (HK$ m)                                                    2008A              2009A               2010F               2011F

Revenues
Port handling                                                     1,221               1,041               1,078               1,141
Sales                                                                NA                 330                 363                 399
Total                                                             1,221               1,370               1,441               1,540

Operating Profit
Port handling                                                       206                 -33                134                 158
Sales                                                                NA                   8                  9                  10
Total                                                               206                 -24                143                 168

Operating Margins (%)
Port handling                                                      16.9                 -3.1               12.4                13.9
Sales                                                               NA                   2.5                2.5                 2.5
Total                                                              16.9                 -1.8                9.9                10.9

Assumptions
Throughput
Container (mn TEU)                                                  2.8                 2.5                 2.5                 2.7
Bulk (mn mt)                                                       13.1                13.7                14.4                15.1
Throughput growth (%)
Container                                                           0%                -10%                  1%                  5%
Bulk                                                                1%                  5%                  5%                  5%

Blended handling charge
Container (HK$/TEU)                                                 279                 237                 237                237
Bulk (HK$/mt)                                                        35                  33                  34                 34
Blended handling charge growth (%)
Container                                                          -3%                -15%                  0%                  0%
Bulk                                                               19%                 -7%                  2%                  2%

Source: Company, DBS Vickers




                                                                                                                           Page 135
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Segmental Analysis (TPC’s Assets)

FY Dec (RMB m)                       2008A    2009A    2010F    2011F

Revenues
Port handling                         3,682    3,485    3,844    4,209
Port ancillary                        1,348    1,238    1,366    1,496
Sales                                 6,047    4,872    5,350    5,618
Total                                11,076    9,595   10,560   11,323

Operating Profit
Port handling                         1,022      816    1,020    1,246
Port ancillary                          360      288      350      435
Sales                                    75       60       66       70
Total                                 1,456    1,164    1,437    1,751

Operating Margins (%)
Port handling                          27.8     23.4     26.5     29.6
Port ancillary                         26.7     23.2     25.6     29.1
Sales                                   1.2      1.2      1.2      1.2
Total                                  13.1     12.1     13.6     15.5

Assumptions
Throughput
Container (mn TEU)                      2.2      2.4      2.7      3.1
Non-containerized cargo (mn mt)       182.4    173.3    185.4    196.5
Throughput growth (%)
Container                             37%        9%     15%      15%
Non-containerized cargo               11%       -5%      7%       6%

Blended handling charge
Container (RMB/TEU)                    256      240      247      250
Non-containerized cargo (RMB/mt)        18       17       18       18
Blended handling charge growth (%)
Container                              -6%      -6%      3%       1%
Non-containerized cargo                -7%      -2%      2%       2%

Source: Company, DBS Vickers


Segmental Analysis of Enlarged TPD

FY Dec (RMB m)                       2008A    2009A    2010F    2011F

Revenues
Port handling                         5,381    5,013    5,499    5,982
Port ancillary                        1,523    1,411    1,571    1,720
Sales                                 6,833    5,884    6,515    6,859
Total                                13,737   12,309   13,585   14,561

Operating Profit
Port handling                         1,361      898    1,307    1,591
Port ancillary                          406      328      403      501
Sales                                    84       77       85       90
Total                                 1,851    1,303    1,795    2,182

Operating Margins (%)
Port handling                          25.3     17.9     23.8     26.6
Port ancillary                         26.7     23.2     25.6     29.1
Sales                                   1.2      1.3      1.3      1.3
Total                                  13.5     10.6     13.2     15.0

Source: Company, DBS Vickers




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QUARTERLY / INTERIM PERFORMANCE                                        profitable, but also jump significantly following the acquisition
                                                                       of TPC.
In the red since 2H08. TPD has been registering losses since
2H08, primarily due to the weak performance during the                 TPC: over 30% revenue and earnings growth in 1Q10.
financial crisis and one-off provision for a reduction in fair value   According to TPC’s 1Q10 results, TPC’s revenue grew 35% y-o-
of its investment in Tianjin Binhai Teda Logistics. The losses         y in 1Q10, led by a pick up in domestic and global demand. Net
widened in 1H09 and 2H09 due to decreasing throughput and              earnings grew 37% y-o-y to RMB158m, which is largely in line
tariff, and the booking of HK$65m in acquisition related fees.         with revenue growth.
Looking forward, we expect its earnings to not only turn


Interim Income Statement (HK$ m)

FY Dec                                                1H2008                    2H2008                   1H2009                   2H2009


Turnover                                                 603.2                    617.3                     556.8                    813.3
Cost of Goods Sold                                     (302.8)                  (386.9)                   (364.9)                  (588.3)
Gross Profit                                            300.5                    230.4                     191.9                    225.0
Other Oper. (Exp)/Inc                                  (164.0)                  (201.1)                   (197.5)                  (253.1)
Operating Profit                                        136.4                      29.3                      (5.6)                  (28.1)
Other Non Opg (Exp)/Inc                                   42.7                   (25.3)                        0.2                      0.0
Associates & JV Inc                                         7.2                      3.1                      (3.5)                     2.7
Net Interest (Exp)/Inc                                    (5.8)                    (4.1)                        3.1                     4.3
Exceptional Gain/(Loss)                                    0.0                       0.0                       0.0                      0.0
Pre-tax Profit                                          180.5                       3.0                      (5.8)                  (21.1)
Tax                                                      (39.5)                  (10.9)                      (9.9)                   (20.0)
Minority Interest                                         (0.3)                    (0.1)                      (0.1)                     0.0
Net Profit                                              140.7                      (7.9)                   (15.9)                   (41.1)
Net profit bef Except.                                   140.7                     (7.9)                    (15.9)                  (41.1)
EBITDA                                                   252.4                     76.0                       59.6                     43.4

Sales Gth (%)                                               9                          2                        (8)                     32
EBITDA Gth (%)                                             33                       (60)                      (76)                    (43)
Opg Profit Gth                                              5                       (77)                    (104)                   (196)
Net Profit Gth (%)                                       19.4                    (107.3)                  (111.3)                   419.4
Gross Margins (%)                                        49.8                      37.3                      34.5                    27.7
Opg Profit Margins (%)                                   22.6                        4.8                     (1.0)                   (3.5)
Net Profit Margins (%)                                   23.3                      (1.3)                     (2.8)                   (5.1)

Source: Company, DBS Vickers




                                                                                                                                  Page 137
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FINANCIALS – INCOME STATEMENT                                                                                  declines in throughput and handling tariff.
                                                                                                               Boosted revenue and earnings with acquisition. We project
Revenue grew in FY09, but earnings fell continuously from
                                                                                                               revenue will expanded 10-fold to HK$13,479bn in FY10F
FY06 to FY09. Revenue grew at 10.2% CAGR over FY06-FY08,
                                                                                                               following the consolidation of TPC’s accounts. It will continue to
mainly driven by its port handling business. FY09 revenue
                                                                                                               grow 7.2% in FY11F, but gross margin will drop to 24.8%
growth was mainly due to its new sales business. Excluding this,
                                                                                                               because of the high portion of sales business at TPC. Earnings
port handling business actually slumped 15.4% y-o-y. And
                                                                                                               should turnaround to a HK$596m profit in FY10F from losses in
despite higher revenue, its earning turned to losses in FY09.
                                                                                                               FY09 following the acquisition.
Even if we add back the HK$65m project related expenses,
recurring net profit was only HK$17m in FY09, represent a net
margin of 1.3%. The weaker margin was attributed to the
                                Sales Trend                                                   Operating Cost Trend                                               Profitability Trend
         RMB m

            14,000                                                                    12000                                                                                                             (14%)
                                                                    900.0%                                                                         700
            12,000                                                  800.0%            10000                                                                                                             (214%)
                                                                                                                                                   600
            10,000                                                  700.0%                                                                                                                              (414%)
                                                                                       8000                                                        500
                                                                    600.0%
             8,000                                                                                                                                                                                      (614%)
                                                                    500.0%             6000                                                        400
             6,000                                                  400.0%                                                                                                                              (814%)
                                                                                                                                                   300
                                                                    300.0%             4000
             4,000                                                                                                                                 200                                                  (1014%)
                                                                    200.0%
             2,000                                                                     2000                                                                                                             (1214%)
                                                                    100.0%                                                                         100
                 0                                                  0.0%                 0                                                           0                                                  (1414%)
                       2007A    2008A   2009A   2010F   2011F                                 2007A    2008A     2009A         2010F    2011F            2007A   2008A     2009A      2010F     2011F
                                                                                                         Other Operating Expenses (-)                            Net Profit (After-extraordinaries)
                     Total Revenue       Revenue Growth (%) (YoY)                                        Cost of Goods Sold (-)
                                                                                                                                                                 Net Profit Growth (%) (YoY)




FY Dec                                                                       2006A                2007A                                 2008A    2009A                         2010F                             2011F

Turnover                                                                     1,005                    1,157                             1,221     1,370                      13,585                        14,561
Cost of Goods Sold                                                           (484)                    (562)                             (690)     (953)                    (10,214)                       (10,756)
Gross Profit                                                                   521                      596                               531       417                       3,371                         3,805
Other Opg (Exp)/Inc                                                          (290)                    (443)                             (365)     (443)                     (1,575)                        (1,623)
Operating Profit                                                               231                      259                               166       (27)                      1,795                         2,182
Other Non Opg (Exp)/Inc                                                          0                       11                                 40         2                           0                             0
Associates & JV Inc                                                               1                        1                                10        (1)                        156                           180
Net Interest (Exp)/Inc                                                         109                       17                               (10)         7                       (289)                         (293)
Exceptional Gain/(Loss)                                                           0                        0                              (25)          0                          0                             0
Pre-tax Profit                                                                 341                      288                               181       (18)                      1,662                         2,069
Tax                                                                            (37)                     (47)                              (50)      (30)                       (416)                         (517)
Minority Interest                                                                0                        0                                  0         0                       (651)                         (806)
Preference Dividend                                                              0                        0                                  0         0                           0                             0
Net Profit                                                                     304                      240                               130       (48)                        596                            745
Net profit before Except.                                                      304                      240                               156       (48)                         596                           745
EBITDA                                                                         329                      392                               351       112                       2,859                          3,366

Sales Gth (%)                                                                  N/A                     15.2                                5.5       12.3                     891.5                                7.2
EBITDA Gth (%)                                                                 N/A                     19.2                             (10.5)     (68.1)                   2,449.6                               17.7
Operating Profit Gth (%)                                                       N/A                     12.4                             (36.1)   (116.0)                  (6,870.3)                               21.5
Net Profit Gth (%)                                                             N/A                    (20.9)                            (45.8)   (136.7)                  (1,346.4)                               25.0
Gross Margins (%)                                                             51.8                     51.5                               43.5       30.4                      24.8                               26.1
Opg Margins (%)                                                               23.0                     22.4                               13.6      (1.9)                      13.2                               15.0
Net Profit Margins (%)                                                        30.3                     20.8                               10.7       (3.5)                      4.4                                5.1
% of Opg Expenses to Sales                                                    28.9                     29.1                               29.9       32.4                      11.6                               11.1
Effective Tax Rate (%)                                                        10.8                     16.4                               27.8        N/A                      25.0                               25.0

Source: Company, DBS Vickers




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                                                                                                                                                           Tianjin Port




FINANCIALS – BALANCE SHEET
                                                                    Book value cut, no goodwill. Management indicated that they
                                                                    would not book goodwill after the merger, which means any
Jump in debt, but financials remain reasonable. Total debt will
                                                                    shortfall i.e. goodwill will be directly deducted from equity. We
soar to nearly HK$10bn in FY10F from HK$1bn in FY09, mainly
                                                                    expect book value per share to drop to HK$1.26 in FY10F from
due to higher debt level at TPC and new debt raised for the
                                                                    HK$2.01 at end-2009 as we estimated a deduction of
acquisition. Net gearing ratio is expected to rise to 0.5x in FY10F
                                                                    HK$2.7bn from equity in FY10F.
and FY11F, from 0.2x previously, which is still reasonable.

                  Breakdown of Assets                         Breakdown of Capital                            Financial Leverage & Net Debt to Equity
                                                                                                                                                                             1.9
                                                                                                               8,130
                             Debtors -                                                                                                                                       1.7
               Inventory -                                                    ST Debt -                        7,130
                              10.2%                                                                                                                                          1.5
                  3.8%                                                          0.0%                           6,130
                                                                                          LT Debt -                                                                          1.3
                                                                                           24.0%               5,130
                                                                                                                                                                             1.1
           Bank, Cash                                                                                          4,130                                                         0.9
           and Liquid                                                                                          3,130                                                         0.7
            Assets -
                                         Net Fixed                                                             2,130                                                         0.5
             18.5%                                            Common
                                          Assets -                                                             1,130                                                         0.3
                                                             Shareholder
                                          67.5%
                                                              s' Equity -                                       130                                                          0.1
                                                                76.0%                                                  2007A      2008A      2009A      2010F      2011F
                                                                                                                 Net Debt/(Cash)                   Net Debt to Equity (X) (R.H.S)
                                                                                                                 Financial Leverage (X) (R.H.S)



FY Dec                                               2006A                  2007A                     2008A    2009A                              2010F                         2011F

Net Fixed Assets                                     2,475                  2,571                     2,635     2,587                     20,896.4                            21,975
Invts in Assocs & JVs                                   24                    729                     1,459     1,520                        3,497                             3,677
Other LT Assets                                         19                     15                        30        51                          581                               575
Cash & ST Invts                                        926                    439                       589       707                        1,750                             1,750
Inventory                                                2                      5                         5       145                          421                               446
Debtors                                                 70                    146                       175       391                        3,088                             3,309
Other Current Assets                                    12                      3                         9        43                           43                                43
Total Assets                                         3,527                  3,907                     4,903     5,445                      30,276                             31,775

ST Debt                                                120                      0                         0       150                         2,475                            2,475
Other Current Liab                                     406                    123                       144       493                         3,223                            3,394
LT Debt                                                  0                    390                     1,140     1,200                         7,649                            7,649
Other LT Liabilities                                     0                      0                         0        12                            94                               94
Shareholder’s Equity                                 2,998                  3,390                     3,614     3,586                         7,756                            8,279
Minority Interests                                       4                      4                         4         4                         9,079                            9,885
Total Cap. & Liab.                                   3,527                  3,907                     4,903     5,445                        30,276                           31,776

 Total Debt                                          119.5                  390.0               1,140.3       1,349.3                   10,124.0                        10,124.0
 Net Cash / (Debt)                                    807                     49                  (551)         (642)                    (8,374)                         (8,374)

 Coverage Ratios (x)
 Net Interest Cover                                   N/A                    N/A                      16.7        N/A                              6.2                              7.4

 Leverage Analysis (x)
 EBITDA Gross Interest Cover                          40.1                  117.8                     13.2        8.9                              8.4                              9.9
 Total Debt to EBITDA                                  0.4                    1.0                      3.2       12.0                              3.5                              3.0
 Total Debt to Total Assets                            0.0                    0.1                      0.2        0.2                              0.3                              0.3
 Total Debt to Capital                                 0.0                    0.1                      0.3        0.4                              0.6                              0.6
 Net Debt to Equity                                  CASH                   CASH                       0.2        0.2                              0.5                              0.5
 Capex to Debt                                         6.8                    0.9                      0.1        0.1                              0.2                              0.2

 Liquidity Analysis (x)
 Cash Ratio                                            1.8                    3.6                      4.1         1.1                             0.3                              0.3
 Current Ratio                                         1.9                    4.8                      5.4         2.0                             0.9                              0.9
 Quick Ratio                                           1.9                    4.7                      5.3         1.7                             0.8                              0.9

Source: Company, DBS Vickers




                                                                                                                                                                           Page 139
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FINANCIALS – CASH FLOW                                                                                            rising oil prices. This does not include the possible acquisition of
                                                                                                                  the large scale crude oil terminal from its parent.
Large investment CF in FY10F. The large investment cash flow
anticipated for FY10F will comprise cash outflow for the                                                          Placement and debt to fund acquisition. Nearly 1 trillion new
acquisition of TPC and over RMB2bn capex for TPC. 80% of the                                                      shares were placed out at HK$2.50 each in early this year.
capex will be used for the construction of new terminals and                                                      Coupled with the exercise of 90m share options and
bonded logistics areas, and the rest for the purchase and                                                         HK$1,600m new borrowings, TPD raised a total of HK$4tn cash
upgrade of facilities and transformation of port facilities from                                                  to pay TPG for the acquisition.
oil-powered to electricity-powered. This will save costs amid the

                      Cash Flow Trend                                                  Free Cash Flow Per Share                                                  Free Cash Flow As At Year End

                                                                               0.38
                                                                                                                                                           180
         4,592
                                                                               0.28                                                                        160
         2,592                                                                                                                                             140
                                                                               0.18                                                                        120
           592
                                                                                                                                                           100
                                                                               0.08
         -1,408                                                                                                                                             80

                                                                              (0.02)                                                                        60
         -3,408
                                                                                                                                                            40
         -5,408                                                               (0.12)                                                                        20
                  2007A    2008A     2009A     2010F        2011F                      2007A       2008A          2009A      2010F        2011F

                  CF from Op   CF from Invt   CF from Fin                              Free Cash Flow Per Share    Free Operating Cash Flow Per Share
                                                                                                                                                                   2007A   2008A     2009A    2010F   2011F




FY Dec                                                              2006A              2007A                               2008A                        2009A                      2010F                      2011F

Pre-Tax Profit                                                        341                    288                                 181                      (18)                      1,662                      2,069
Dep. & Amort.                                                          97                    121                                 135                      137                          908                     1,004
Tax Paid                                                              (37)                   (49)                                (61)                     (15)                       (416)                      (517)
Assoc. & JV Inc/(loss)                                                 (1)                    (1)                                (10)                        1                       (156)                      (180)
Chg in Wkg.Cap.                                                       (14)                   (38)                                 15                      (39)                       (100)                       (76)
Other Operating CF                                                   (107)                     (5)                               (55)                     (18)                         (52)                      (48)
Net Operating CF                                                      290                    321                                 232                       48                       1,847                      2,251

Capital Exp.(net)                                                    (808)               (364)                                  (74)                       (82)                    (2,500)                    (2,076)
Other Invts.(net)                                                         4                 20                                  (40)                       (11)                    (2,468)                          0
Invts in Assoc. & JV                                                    (7)              (704)                                (652)                        (61)                          0                          0
Div from Assoc & JV                                                       2                  1                                    1                          1                           0                          0
Other Investing CF                                                     117                  20                                   13                         13                          52                         48
Net Investing CF                                                     (692)             (1,026)                                (753)                      (140)                     (4,916)                    (2,029)

Div Paid                                                              (97)                   (89)                             (104)                         0                        (179)                     (224)
Chg in Gross Debt                                                     (20)                   261                               750                        209                       1,600                          0
Capital Issues                                                      1,162                       1                                 0                         0                       2,691                          0
Other Financing CF                                                     26                     44                                24                          2                           0                         0
Net Financing CF                                                    1,072                    217                               671                        211                       4,112                      (224)

Net Cashflow                                                           670                (488)                                 150                       119                       1,043                         (1)
Opg CFPS (HK cts)                                                     19.9                 20.1                                12.1                        4.9                        31.6                      37.8
Free CFPS (HK cts)                                                  (34.0)                 (2.4)                                8.8                      (1.9)                      (10.6)                       2.8

Source: Company, DBS Vickers




Page 140
                                                                                                                                                                        China Port Sector
                                                                                                                                                                                       Tianjin Port




FINANCIALS – ROE DRIVERS

Low net margins due to large MI. Although TPD will return to                                              ROAE at >9% for FY11F. Financial leverage will also jump in
profit in FY10F, net margin will be only 4.4% due to the high                                             FY10F due to higher debt level post- TPC consolidation and new
portion of minority interests. Net margin is expected to improve                                          debt raised for the acquisition. ROAE will rise to 10.5% in
to 5.1% in FY11F following recovering operating margins.                                                  FY10F due to lower equity interests. As a combined result of
                                                                                                          improved net margin, lower asset turnover, and stable financial
                                                                                                          leverage, ROAE is estimated at 9.3% for FY11F.

                 ROAE / ROAA Trend (%)                                                       Margin Trend (%)                                 Total Debt & Gross Interest Cover
         12.0%                                                                 40%

         10.0%                                                                 35%                                                          10000                                                                77.7x

                                                                               30%                                                                                                                               67.7x
         8.0%                                                                                                                                8000
                                                                               25%                                                                                                                               57.7x
         6.0%                                                                                                                                                                                                    47.7x
                                                                               20%                                                           6000
                                                                                                                                                                                                                 37.7x
         4.0%                                                                  15%
                                                                                                                                             4000                                                                27.7x
         2.0%                                                                  10%
                                                                                                                                                                                                                 17.7x
                                                                                                                                             2000
                                                                               5%
         0.0%                                                                                                                                                                                                    7.7x
                 2007A      2008A       2009A    2010F      2011F              0%                                                               0                                                                (2.3x)
         -2.0%                                                                       2007A        2008A    2009A     2010F     2011F                2007A   2008A       2009A          2010F          2011F
           Ret on Avg Equity (ROAE) %     Ret on Avg Assets (ROAA) %            EBITDA Margin %     EBIT Margin %   Net Income Margin %                      Total Debt (+)     Gross Interest Cover (X) (YoY)




FY Dec                                                                 2006A              2007A                         2008A             2009A                       2010F                                      2011F

Profitability Ratios
Sales Growth (%)                                                         N/A               15.2                             5.5            12.3                  891.5                                              7.2
Gross Margin (%)                                                        51.8               51.5                            43.5            30.4                    24.8                                            26.1
Operating Margin (%)                                                    23.0               22.4                            13.6            (1.9)                   13.2                                            15.0
Net Profit Margin (%)                                                   30.3               20.8                            10.7            (3.5)                    4.4                                             5.1
Financial Leverage (x)                                                 117.5              115.1                           135.5           151.6                   179.8                                           174.9
Tax Retention Rate (%)                                                  89.2               83.6                            72.2             N/A                    75.0                                            75.0
Sustainable Growth (%)                                                   N/A                4.5                             2.1             N/A                     7.4                                             6.5
ROAE (%)                                                                 N/A                7.5                             3.7            (1.3)                   10.5                                             9.3
ROA (%)                                                                  N/A                6.5                             3.0            (0.9)                    3.3                                             2.4
ROCE (%)                                                                 N/A            3,670.9                         (578.3)            64.2              (11,688.6)                                            12.8

Activity Ratios
Debtors Turn (average days)                                              N/A                  34.0                           48.0          75.4                           46.7                                     80.2
Creditors Turn (average days)                                            N/A                 102.6                           71.0         131.3                           70.2                                    120.0
Inventory Turn (average days)                                            N/A                   2.8                            3.3          33.7                           11.1                                     16.2
Total Asset Turnover (x)                                                 N/A                   0.3                            0.3           0.3                            0.8                                      0.5
Fixed Asset Turnover (x)                                                 N/A                   0.5                            0.5           0.5                            1.2                                      0.7
Asset Replacement Ratio (x                                               9.4                   3.5                            0.6           0.7                            3.1                                      2.3

Source: Company, DBS Vickers




                                                                                                                                                                                                              Page 141
China Port Sector
Tianjin Port




VALUATION                                                                   be the pending acquisition of the large-scale crude oil terminal
                                                                            from parent.
Initiate coverage with HOLD rating and HK$1.94 TP. We
initiate coverage of TPD with a HOLD rating and target price of             TPD is currently trading at 17.7x FY10 P/E and 1.4x FY10 P/BV,
HK$1.94 based on SOTP valuation. This translates into 20.0x                 respectively, which is higher than the sector’s average of 14.5x
FY10 P/E and 1.5x FY10 P/BV. Potential re-rating catalyst could             and 1.2x, respectively. Its current valuation is not attractive.

SOTP Valuation

                                      Value
                                    (HK$ m)                                                                                   Comments
 Previous TPD value                   2,558              DCF for port-related business, WACC 8.8%, terminal growth 3%, plus 10x forward
                                                                                                               earnings of sales business
 TPC value                           19,301              DCF for port-related business, WACC 8.8%, terminal growth 3%, plus 10x forward
                                                                                                               earnings of sales business
 Enlarged TPD value                  11,924                                                   Previous TPD value, plus 56.81% of TPC value
 No of shares (m)                         6,158


 Target price (HK$/share)                  1.94                                                             Exchange rate (RMB/HK$) = 1.15

Source: Bloomberg, exchange rate closing @ Jul 14, 2010, DBS Vickers




Peers Valuation Table

                                                   Cur                                PE                   ROE                    PB
                                                  Mkt
                                                              Px
 Company                         Ticker            Cap               PEG
                                                             Last             09Y    10Y     11Y    09Y    10Y     11Y    09Y    10Y     11Y
                                                  (US$
                                                   m)
 H-share ports ^                                                      0.8     16.5   14.5    12.8    7.8    9.4     9.3    1.2    1.2     1.2
 China Merchants Holdings         144.HK           8,360     26.70    1.1     20.1   19.5    16.7   10.1    9.7    10.7    1.9    1.8     1.7
 COSCO Pacific                   1199.HK           3,419      9.80    0.3     16.5    9.6    11.0    6.5   10.6     8.5    1.0    0.9     0.9
 Dalian Port PDA                 2880.HK           1,216      3.23    0.9     13.5   12.3    10.5    9.3   10.1    11.4    1.2    1.2     1.1
 Xiamen Int'l Port               3378.HK             488      1.39    0.8     16.1   13.3    12.0    5.4    6.3     6.7    0.9    0.8     0.8
 Tianjin Port Dev                3382.HK           1,355      1.71    NA       NA    17.7    14.1    NA    10.5     9.3    0.9    1.4     1.3
 A-share container ports                                              NA      20.7   18.9    17.2   12.7   12.3    12.8    2.6    2.4     2.3
 Shenzhen Chiwan Wharf         000022.CH           1,115     12.19    NA      17.7   15.5    13.9   15.4   16.5    16.7    2.7    2.5     2.3
 Shenzhen Yantian Port         000088.CH           1,154      6.28    NA      17.5   17.0    15.8   11.0    9.9     9.6    1.9    1.7     1.8
 Shanghai Int'l Port Group     600018.CH          12,115      3.91    NA      21.5   18.7    17.5   11.7   13.0    13.3    2.6    2.4     2.2
 A-share bulk ports                                                   NA      38.8   24.8    20.7    7.9    9.3    10.4    2.4    2.2     1.9
 Tianjin Port                  600717.CH           2,015      8.15    NA      16.9   16.2    13.8    8.0    7.4    8.0     1.4    1.3     1.3
 Rizhao Port                   600017.CH           1,235      5.54    NA      22.4   16.8    14.4    9.1   12.2   13.0     2.0    1.8     1.7
 Jiangsu Lianyungang Port      601008.CH             443      5.58    NA      31.9   22.3    18.2    5.7    7.4    9.4     1.9    1.6     1.5
 Xiamen Port Development       000905.CH             567      7.24    NA      38.1    NA      NA     NA     NA     NA      NA     NA      NA
 Beihai Beihai Port            000582.CH             228     10.89    NA       NA     NA      NA     NA     NA     NA      NA     NA      NA
 Yingkou Port Liability        600317.CH             975      6.02    NA      31.5   29.1    24.8    6.2    6.3    7.8     2.0    1.8     1.8
 Nanjing Port                  002040.CH             278      7.65    NA       NA     NA      NA     NA     NA     NA      NA     NA      NA
 Chongqing Gangjiu             600279.CH             372     11.02    NA      61.2   38.7    31.9    NA     NA     NA      NA     3.1     NA
 Wuhu Port                     600575.CH             832     15.84    NA      78.4   20.8    18.1   10.6   13.4   13.7     4.5    3.2     3.1
 Jinzhou Port                  600190.CH           1,025      4.71    NA      30.0   29.4    23.6    NA     NA     NA      NA     NA      NA
 Tangshan Port                 600100.CH           1,154       7.8    0.7      NA    23.4    18.1    NA    10.1   12.4     NA     2.1     1.9

Source: Bloomberg closing @ Jul 14, 2010, ^ DBS Vickers




Page 142
                                                                                                                                                                                                                                                                    China Port Sector
                                                                                                                                                                                                                                                                                Tianjin Port



                                                                                                                                                 and 88.9x, respectively, in Oct 07, before falling to their lowest
Highest valuation in Oct 2007 due to merger speculation.
                                                                                                                                                 levels of 0.4x and 6.1x, respectively, one year later. Its valuation
Speculation about the merger between TPD and TPC arose
                                                                                                                                                 jumped again after it announced the acquisition of TPC in Mar
after the two companies started to have a common chairman
                                                                                                                                                 2009, and fell again early this year on concerns price surge was
in 1H07. Coupled with the pending approval for the Tianjin
                                                                                                                                                 excessive.
Binhai New Area plan, TPD’s valuation was pushed to its
highest level in Oct 2007. P/BV and P/E multiples reached 5.3x


PE chart                                                                                                                                        PB chart


 x                                                                                                                                               x
 90                                                                                                                                              6
 80
                                                                                                                                                 5
 70
 60                                                                                                                                              4
 50
                                                                                                                                                 3
 40
 30                                                                                                                                              2
 20
                                                                                                                                                 1
 10
  0                                                                                                                                              0
        May-06

                 Sep-06
                           Jan-07
                                        May-07
                                                    Sep-07
                                                             Jan-08
                                                                      May-08
                                                                                  Sep-08

                                                                                                Jan-09
                                                                                                          May-09

                                                                                                                   Sep-09
                                                                                                                              Jan-10
                                                                                                                                       May-10




                                                                                                                                                      May-06

                                                                                                                                                                Sep-06

                                                                                                                                                                             Jan-07
                                                                                                                                                                                           May-07

                                                                                                                                                                                                      Sep-07

                                                                                                                                                                                                               Jan-08

                                                                                                                                                                                                                        May-08

                                                                                                                                                                                                                                    Sep-08
                                                                                                                                                                                                                                                  Jan-09
                                                                                                                                                                                                                                                              May-09

                                                                                                                                                                                                                                                                       Sep-09
                                                                                                                                                                                                                                                                                Jan-10
                                                                                                                                                                                                                                                                                          May-10
Source: Bloomberg, DBS Vickers                                                                                                                  Source: Bloomberg, DBS Vickers




PE band chart                                                                                                                                   PB band chart


 Share Price (HK$)                                                                                                                               Share Price (HK$)
 12                                                                                                                                              12
                                                                                                                                       95x
 10                                                                                                                                              10

  8                                                                                                                                    74x        8

  6                                                                                                                                    52x        6                                                                                                                                      4.2x
                                                                                                                                                                                                                                                                                          3.2x
  4                                                                                                                                    31x        4
                                                                                                                                                                                                                                                                                          2.3x
  2                                                                                                                                               2                                                                                                                                      1.3x
                                                                                                                                       10x                                                                                                                                               0.4x
  0                                                                                                                                               0
      May-06

                  Oct-06

                               Mar-07




                                                                                                                                                       May-06

                                                                                                                                                                    Oct-06

                                                                                                                                                                                      Mar-07
                                                 Aug-07

                                                             Jan-08

                                                                         Jun-08

                                                                                           Nov-08




                                                                                                                     Sep-09
                                                                                                         Apr-09




                                                                                                                                                                                                    Aug-07

                                                                                                                                                                                                               Jan-08

                                                                                                                                                                                                                           Jun-08

                                                                                                                                                                                                                                             Nov-08




                                                                                                                                                                                                                                                                       Sep-09
                                                                                                                                                                                                                                                           Apr-09




Source: Bloomberg, DBS Vickers                                                                                                                  Source: Bloomberg, DBS Vickers




                                                                                                                                                                                                                                                                                                   Page 143
China Port Sector
Tianjin Port
Appendix 1: Key Management Team
Manager                Current                                                                          Previous Experience Ownership
                  Appointment
Yu Rumin    Executive Director         Graduated from Shanghai Haiyun College in 1975 and obtained a Master’s degree in         2,300,000
                  & Chairman                                          international transport engineering management.             Options
 (60)                                                                                                                             (0.13%)
                                                           Has extensive experience in port management for over 20 years.
                                  Held various positions at Tianjin Port Authority and Tianjin Port Group since March 1986.
                                         Had been the deputy head of the Tianjin Port Authority since December 1988, the
                                    executive deputy head since July 1996 and the head of Tianjin Port Authority since June
                                                                                                                      2002.
                                    Currently the chairman of Tianjin Port Group, acting chairman of Tianjin Development,
                                                                                       and the chairman of Tianjin Port Co.

Tian     Executive Director                                            Holds a graduate and senior economist qualification.
Changsong & Vice Chairman
                                 Has over 30 years of experience at the port of Tianjin and has solid experience in port oper
(57)                                                                   ation, corporate management and capital operation.
                                         Held various positions at Tianjin Port Authority and Tianjin Port Group since 1994.
                                   Has been an executive director and the deputy general manager of Tianjin Development
                                                                                                     since February 2004.
                                                  Currently CEO of Tianjin Port Group and vice chairman of Tianjin Port Co.

Li       Executive Director                  Hold a master’s degree in engineering and senior economist qualification.
Quanyong      & Managing
                   Director Has nearly 20 years of experience in operation management and capital operation in listed
(48)                                                                                                      companies.
                                                                 Held various positions at Tianjin Port Co. from March 1992.
                                          Currently a Director of Tianjin Port Co. and chief economist of Tianjin Port Group.

Zhang       Executive Director          A qualified senior accountant and completed a research and study course in foreign      2,000,000
Jinming     & Deputy General                      related economics at the Tianjin Economics and Finance University in 1992.      Options
                     Manager                                                                                                      (0.11%)
(59)                                              Has over 30 years of experience in accounting and financial management.
                                         Held various positions at Tianjin Port Authority and Tianjin Port Group since 1974.

Dai Yan     Executive Director    Graduated from the University of Int’l Business and Economics in 1980 and completed the       1,100,000
                                      professional course in law in the Party School of Central Committee of C.P.C. and the       Options
(57)                                     postgraduate course of iint’l trade in Tianjin University of Finance and Economics.      (0.06%)
                                   Acted as the deputy general manager of Tianjin Garments Import & Export Corporation;
                                      the deputy general manager of Tianjin Garments Associate Corporation; the director,
                                   deputy general manager and general manager of Tianjin Zhong Fu International Group
                                  Co., Ltd and the director and deputy general manager of Tianjin Textile (Holdings) Group
                                                                                                   Ltd. From 1988 to 2002.
                                      Currently an executive director and the executive deputy general manager of Tianjin
                                     Development and a director, the executive deputy general manager of Tsinlien and an
                                                                           executive director of Binhai Investment Co., Ltd.
                                                                     Has solid experience in management for over 20 years..
Source: Company




Page 144
                                                                                                    China Port Sector
                                                                                                        Tianjin Port
Appendix 2: Layout of Tianjin Hub




                                                          Beijing


                                                                   Tianjin




                                                                         Haifeng
                         Global RO-RO
                                                                             Haitian    Dongjiang
                                                  Euroasia

                               Beijiang
                                                        Alliance             Tianjin Port Pacific

                                                                   Tianjin Port Ro-Ro

       Tianjin Port                             No. 2 Co.
       Passenger Transport                                 TCT
                                                                     Tianjin Five Continents
                                                   No. 5
                         No. 1 Co.                 Co.          Tianjin
                                   Xingang Sinor                Orient
                                                 No. 4 Co.
            Petrochemicals Terminal                        Yuanhang Bulk
                              Coke                                     Shenhua
                              Terminal Coal Huaneng Yuanhang Ore
                                 China

                                                                         Nanjiang
                 Operated by Tianjin Port Development

                 Operated by Tianjin Port Co (acquisition of which completed in February 2010)




Source: Company, DBS Vickers




                                                                                                              Page 145
China Port Sector
Tianjin Port
Income Statement (HK$ m)                                                      Balance Sheet (HK$ m)
FY Dec                          2008A      2009A        2010F       2011F     FY Dec                       2008A      2009A       2010F     2011F
Turnover                         1,221      1,370       13,585      14,561    Net Fixed Assets              2,635      2,587     20,896    21,975
Cost of Goods Sold                (690)      (953)    (10,214)    (10,756)    Invts in Assocs & JVs         1,459      1,520      3,497     3,677
Gross Profit                       531        417        3,371       3,805    Other LT Assets                  30         51        581       575
Other Opg (Exp)/Inc               (365)      (443)      (1,575)     (1,623)   Cash & ST Invts                 589        707      1,750     1,750
Operating Profit                   166        (27)       1,795       2,182    Inventory                         5        145        421       446
Other Non Opg (Exp)/Inc              40          2            0           0   Debtors                         175        391      3,088     3,309
Associates & JV Inc                  10        (1)          156        180    Other Current Assets              9         43         43        43
Net Interest (Exp)/Inc             (10)          7        (289)       (293)   Total Assets                  4,903      5,445     30,276    31,775
Exceptional Gain/(Loss)             (25)         0            0           0
Pre-tax Profit                     181        (18)       1,662       2,069    ST Debt                           0        150      2,475     2,475
Tax                                (50)       (30)        (416)       (517)   Other Current Liab              144        493      3,223     3,394
Minority Interest                     0          0        (651)       (806)   LT Debt                       1,140      1,200      7,649     7,649
Preference Dividend                   0          0            0           0   Other LT Liabilities              0         12         94        94
Net Profit                         130        (48)         596         745    Shareholder’s Equity          3,614      3,586      7,756     8,279
Net profit before Except.          156        (48)          596        745    Minority Interests                4          4      9,079     9,885
                                                                              Total Cap. & Liab.            4,903      5,445     30,276    31,776
EBITDA                             351        112        2,859      3,366
Sales Gth (%)                       5.5      12.3        891.5        7.2     Non-Cash Wkg. Cap                46         86        328        404
EBITDA Gth (%)                   (10.5)     (68.1)     2,449.6       17.7     Net Cash/(Debt)                (551)      (642)    (8,374)   (8,374)
Opg Profit Gth (%)               (36.1)    (116.0)    (6,870.3)      21.5
Effective Tax Rate (%)             27.8       N/A         25.0       25.0
Cash Flow Statement (HK$ m)                                                   Rates & Ratios
FY Dec                          2008A      2009A        2010F       2011F     FY Dec                       2008A      2009A       2010F     2011F
Pre-Tax Profit                     181         (18)     1,662       2,069     Gross Margin (%)               43.5       30.4       24.8      26.1
Dep. & Amort.                      135         137         908      1,004     Opg Profit Margin (%)          13.6       (1.9)      13.2      15.0
Tax Paid                           (61)        (15)      (416)       (517)    Net Profit Margin (%)          10.7       (3.5)       4.4       5.1
(Pft)/ Loss on disposal of FAs      28           0           0           0    ROAE (%)                        3.7       (1.3)      10.5       9.3
Assoc. & JV Inc/(loss)             (10)          1       (156)       (180)    ROA (%)                         3.0       (0.9)       3.3       2.4
Non-Cash Wkg.Cap.                    15        (39)      (100)         (76)   ROCE (%)                    (578.3)       64.2 (11,688.6)      12.8
Other Operating CF                 (55)        (18)        (52)        (48)   Div Payout Ratio (%)           42.5        N/A       30.0      30.0
Net Operating CF                  232           48      1,847       2,251     Interest Cover (x)             16.7        N/A        6.2       7.4
Capital Exp.(net)                  (74)        (82)    (2,500)     (2,076)    Asset Turnover (x)              0.3         0.3       0.8       0.5
Other Invts.(net)                  (40)        (11)    (2,468)           0    Debtors Turn (days)            48.0       75.4       46.7      80.2
Invts in Assoc. & JV             (652)         (61)          0           0    Creditors Turn (days)          71.0      131.3       70.2     120.0
Div from Assoc & JV                   1          1           0           0    Inventory Turn (days)           3.3       33.7       11.1      16.2
Other Investing CF                   13         13          52          48    Current Ratio (x)               5.4         2.0       0.9       0.9
Net Investing CF                 (753)       (140)     (4,916)     (2,029)    Quick Ratio (x)                 5.3         1.7       0.8       0.9
Div Paid                         (104)           0       (179)       (224)    Net Debt/Equity (X)             0.2         0.2       0.5       0.5
Chg in Gross Debt                  750         209      1,600            0    Capex to Debt (%)               6.5         6.1      24.7      20.5
Capital Issues                        0          0      2,691            0    Z-Score (X)                   CASH       CASH       CASH      CASH
Other Financing CF                  24           2           0           0    N.Cash/(Debt)PS (HK$)          (0.3)      (0.4)      (1.4)     (1.4)
Net Financing CF                  671         211       4,112        (224)    Opg CFPS (HK$)                 0.12       0.05       0.32      0.38
Net Cashflow                       150         119      1,043           (1)   Free CFPS (HK$)                0.09      (0.02)    (0.11)      0.03
Interim Income Statement (HK$ m)                                              Segmental Breakdown (HK$ m)
FY Dec                         1H2008      2H2008     1H2009      2H2009      FY Dec                     2008A       2009A       2010F      2011F
Turnover                           603        617         557         813     Revenues
Cost of Goods Sold                (303)      (387)       (365)       (588)     Port Handling              5,381       5,013      5,499      5,982
Gross Profit                       300        230         192         225      Port ancillary             1,523       1,411      1,571      1,720
Other Oper. (Exp)/Inc             (164)      (201)       (198)       (253)     Sales                      6,833       5,884      6,515      6,859
Operating Profit                   136         29          (6)        (28)    Total                      13,737      12,309     13,585     14,561
Other Non Opg (Exp)/Inc              43       (25)           0           0
Associates & JV Inc                   7          3         (3)           3
Net Interest (Exp)/Inc               (6)       (4)           3           4    Operating Profit
Exceptional Gain/(Loss)               0          0           0           0     Port Handling              1,361         898      1,307      1,591
Pre-tax Profit                     180          3          (6)        (21)     Port ancillary               406         328        403        501
Tax                                (40)       (11)        (10)        (20)     Sales                         84          77         85         90
Minority Interest                     0          0           0           0    Total                       1,851       1,303      1,795      2,182
Net Profit                         141         (8)        (16)        (41)
Net profit bef Except.              141        (8)        (16)        (41)
EBITDA                             252         76          60          43     Operating Profit Margins
                                                                               Port Handling               25.3        17.9       23.8       26.6
Sales Gth (%)                      8.7        2.5        (7.7)       31.7      Port ancillary              26.7        23.2       25.6       29.1
EBITDA Gth (%)                    32.9      (59.6)      (76.4)      (42.9)     Sales                        1.2         1.3        1.3        1.3
Opg Profit Gth                     4.8      (76.7)     (104.1)     (195.8)    Total                        13.5        10.6       13.2       15.0
Net Profit Gth (%)                19.4     (107.3)     (111.3)      419.4
Gross Margins (%)                 49.8       37.3        34.5        27.7
Opg Profit Margins (%)            22.6        4.8        (1.0)       (3.5)
Net Profit Margins (%)            23.3       (1.3)       (2.8)       (5.1)




Page 146
                                                                                                       Industry Focus
                                                                                                     China Port Sector




Appendix

Appendix 1: Top 20 Global Ports in terms of Total Cargo Throughput (mn mt)

Shanghai Port has become the largest port in the world since 2005 (including river trade).
China costal ports have occupied half of the top 20 world ports in 2009.
 Port                                         Country              2009   2008         2007   2006     2005      2004

 Shanghai*                                    China                590    582           560   538       443       379
 Ningbo                                       China                570    520           473   310       272       226
 Singapore                                Singapore                472    515           484   449       423       393
 Rotterdam                             Netherlands                 387    421           409   382       370       353
 Tianjin                                      China                380    356           310   258       245       206
 Guangzhou                                    China                375    344           343   303       242       215
 Qingdao                                      China                316    300           265   224       184       162
 Qinhuangdao                                  China                244    252           246   205       168       150
 Hong Kong                                    China                243    259           245   238       230       221
 Busan                                 South Korea                 226    242           230   218       217       215
 Dalian                                       China                204    185           165   145       177       145
 Nagoya                                       Japan                200    218           216   208       187       182
 Shenzhen                                     China                194    211           200   176       154       135
 Rizhao                                       China                181    151           131   110        84        51
 Port Hedland                              Australia               159    131           112   111       109       100
 Antwerp                                    Belgium                158    189           183   167       160       152
 Los Angeles               United States of America                158    170           190   182       162       162
 Houston                   United States of America                156    227           225   202       192       182
 Chiba                                        Japan                150    170           169   167       166       169
 South Louisiana           United States of America                116    234           258   263       243       226

Source: Port of Rotterdam, DBS Vickers, * including river trade,




                                                                                                               Page 147
Industry Focus
China Port Sector



Appendix 2: Top 25 World’s Busiest Container Ports (mn TEU)

Coastal ports in China are moving up the list of top global container ports.
By end-2009, 9 ports in China were ranked within the top 25 container ports internationally.
 Rank      1999                mn TEU     …           2008          mn TEU    Yoy (%)    2009           mn TEU    Yoy (%)
 1         HongKong             16.21                 Singapore      29.92         7.2   Singapore       25.87      -13.5
 2         Singapore            15.94                 Shanghai       28.01         7.1   Shanghai        25.00      -10.7
 3         Kaohsiung              6.99                HongKong       24.30         1.8   HongKong        20.98      -14.3
 4         Busan                  6.44                Shenzhen       21.42         2.9   Shenzhen        18.25      -14.8
 5         Rotterdam              6.34                Busan          13.42         1.1   Busan           11.95      -11.0
 6         Long Beach             4.41                Dubai          12.00       13.8    Guangzhou       11.19         1.7
 7         Shanghai               4.22                Guangzhou      11.00       19.5    Dubai           11.12        -6.0
 8         Los Angeles            3.83                Ningbo         10.92       15.9    Ningbo          10.50        -6.5
 9         Hamburg                3.74                Rotterdam      10.83         0.7   Qingdao         10.26        -0.6
 10        Antwerp                3.61                Qingdao        10.02         5.9   Rotterdam         9.74       -9.8
 11        Shenzhen               2.99                Kaohsiung        9.68       -5.7   Tianjin           8.70        2.4
 12        Dubai                  2.84                Hamburg          9.00       -9.9   Kaohsiung         8.58     -11.4
 13        New York               2.83                Antwerp          8.66        6.0   Antwerp           7.31     -15.6
 14        Felixstowe             2.70                Tianjin          8.50      20.9    Kelang            7.30       -8.4
 15        Tokyo                  2.70                Los Angeles      7.85       -6.1   Hamburg           7.01     -28.0
 16        Kelang                 2.52                Long Beach       6.49     -11.3    Los Angeles       6.75     -14.0
 17        T Priok                2.27                PTP              5.80        5.5   PTP               6.00        7.1
 18        G Tauro                2.20                Bremen           5.60      14.0    Long Beach        5.07     -21.9
 19        Bremen                 2.16                Xiamen           5.03      11.3    Xiamen            4.68       -7.1
 20        Kobe                   2.18                Dalian           4.50      21.8    Laem Chabang      4.64       -9.6
 21        Yokohama               2.17                Tokyo            4.30      11.8    Dalian            4.55        1.1
 22        Manila                 2.15                Jeddah           3.05       -0.7   Bremen            4.54     -17.5
 23        San Juan               2.08                Lianyungang      3.00      49.8    New York          4.51     -14.4
 24        Algeciras              1.83                Le Havre         2.50       -3.8   J Nehru           3.86       -7.7
 25        Colombo                1.70                Vancouver        2.49        8.0   T Priok           3.80       -4.5

Source: Containerisation International, DBS Vickers




Page 148
                                                                                                                   Industry Focus
                                                                                                               China Port Sector




Appendix 3: National Planning for Coastal Ports (Five Coastal Port Clusters)

 Region                Hinterland                         Major ports (Positioning)                         Other/satellite ports
 Bohai Rim Region
                       Northeastern China, Eastern        Dalian (Northeast Asia Int'l Shipping Centre),
 Liaoning                                                                                                   Dandong, Jinzhou
                       Inner Mongolia                     Yingkou

                       Beijing, Tianjin, Northern China   Tianjin (Northern China Int'l Shipping Centre),
 Tianjin-Hebei                                                                                              Tangshan, Huanghua
                       and the western extension area     Qinhuangdao

                    Shandong Peninsular and
 Shandong                                                 Qingdao, Yantai, Rizhao                           Weihai
                    western extension area
 Yangtze River Delta Region
 Shanghai,                                                                                                  Zhoushan, Wenzhou,
                                                          Shanghai (Int'l Shipping Centre), Ningbo,
 Jiangsu,              Along Yangtze River                                                                  Nanjing, Zhenjiang,
                                                          Lianyungang
 Zhejiang                                                                                                   Nantong, Suzhou
 Southeast Coast
                     Fujian, Jiangxi, and servicing                                                         Quanzhou, Putian,
 Fujian                                                   Xiamen, Fuzhou
                     "Three Direct Link"                                                                    Zhangzhou
 Pearl River Delta Region
                                                                                                            Shanwei, Huizhou,
 Hongkong, East        Southern China and
                                                          Guangzhou, Shenzhen, Zhuhai, Shantou              Humen, Maoming,
 Guangdong             Southeastern China
                                                                                                            Yangjiang
 Southwest Coast
 Guangxi, West                                                                                              Beihai, Qinzhou, Yangpu,
                       Western China                      Zhanjiang, Fangcheng, Haikou
 Guangdong                                                                                                  Sanya


Source: Ministry of Transport, DBS Vickers




National Planning for Coastal Ports (Eight Transportation Systems)

 A coal transportation system including the six largest ports in the north (Qinhuangdao, Tangshan including Caofeidian, Tianjin,
 Huanghua, Qingdao, Lianyungang)
 An oil transportation system (major 200-300k DWT terminal)
 An iron ore transportation system (major 200-300k DWT terminal)
 A container transportation system with the nine largest trunk-line ports including Dalian, Tianjin, Qingdao, Shanghai, Ningbo,
 Suzhou, Xiamen, Shenzhen and Guangzhou ports
 A food transportation system
 A vehicle transportation system
 A mainland-island rolling transportation system
 A safe and comfortable passenger transportation system

Source: Ministry of Transport, DBS Vickers




                                                                                                                               Page 149
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China Port Sector



Appendix 4: No. of Total Coastal Berths in China                                                 Appendix 5: Length of Quay Line of the Coastal Ports in
                                                                                                 China

By end-2009, total number of berths along the coastal line     Length of quay line grew at a CAGR of 13% from 2000 to
amounted to 5,320, which is more than four times that in 1991. 2008.


 No. of berth                                                                                       m
 5,500                                                                                            600,000
 5,000                                                                                            500,000
 4,500
                                                                                                  400,000
 4,000
 3,500                                                                                            300,000
 3,000                                                                                            200,000
 2,500
                                                                                                  100,000
 2,000
 1,500                                                                                                   0
                                                                                                                1999

                                                                                                                        2000

                                                                                                                                 2001

                                                                                                                                               2002

                                                                                                                                                         2003

                                                                                                                                                                  2004

                                                                                                                                                                         2005

                                                                                                                                                                                  2006

                                                                                                                                                                                            2007

                                                                                                                                                                                                    2008
 1,000
           1999

                  2000

                          2001

                                 2002

                                        2003

                                               2004

                                                       2005

                                                              2006

                                                                       2007

                                                                              2008

                                                                                       2009




                                                                                                                                  Total                           Productive Use

Source: CEIC, DBS Vickers                                                                        Source: CEIC, DBS Vickers,




Appendix 6: China-ASEAN Trade                                                                    Appendix 7: Cross-Strait Trade


The free trade agreement between China and ASEAN was                                             For 1H10, cross-strait trade jumped 61% yoy.
established in early-2010. In 1H10, bilateral trade between the
two regions surged 55% yoy.
                           2008                                  2009
                                                                                                  US$bn
                         US$ bn           Yoy (%)             US$ bn                 Yoy (%)      140                                                                                              50%
 ASEAN                   231.12                14.0           198.06                    -14.3                                                                                                      40%
                                                                                                  120
 Malaysia                 53.47                15.2             51.86                     -3.0
                                                                                                  100                                                                                              30%
 Singapore                52.44                10.5             47.83                     -8.8
                                                                                                                                                                                                   20%
 Thailand                 41.25                18.9             38.18                     -7.4     80
 Indonesia                31.52                25.7             28.28                   -10.3                                                                                                      10%
                                                                                                   60
 Philippines              28.58                 -6.7            20.53                   -28.2                                                                                                      0%
                                                                                                   40
 Vietnam                  19.46                28.8                  6.37               -67.3                                                                                                      -10%
 Myanmar                    2.63               26.4                  2.93                11.4      20                                                                                              -20%
 Cambodia                   1.13               21.3                  0.94               -16.8        0                                                                                             -30%
                                                                                                         1999
                                                                                                                2000
                                                                                                                       2001
                                                                                                                               2002
                                                                                                                                        2003
                                                                                                                                                  2004
                                                                                                                                                           2005
                                                                                                                                                                  2006
                                                                                                                                                                         2007
                                                                                                                                                                                2008
                                                                                                                                                                                         2009




 Laos                       0.42               57.5                  0.72                71.4
 Brunei                     0.22               39.1                  0.42                90.9
                                                                                                                       Value (LHS)                                  Growth (RHS)

Source: CEIC, DBS Vickers                                                                        Source: CEIC, DBS Vickers




Page 150
                                                                                                                                                                                                                                                                                Industry Focus
                                                                                                                                                                                                                                                                    China Port Sector



Appendix 8: Port Climate Index: Container (May 2007=100) Appendix 9: Bulk & General Index DT (Sep2006=100) FT
                                                         (Nov 2006=100)

Port climate index (container) has bottomed out since Mar2009, Port climate index (bulk & general) continued to trend up.
and is maintained at a high level currently.



 May 07 = 100                                                                                                                                               Sep 06 = 100
 160                                                                                                                                                        140
 150                                                                                                                                                        135
                                                                                                                                                            130
 140
                                                                                                                                                            125
 130
                                                                                                                                                            120
 120
                                                                                                                                                            115
 110                                                                                                                                                        110
 100                                                                                                                                                        105
  90                                                                                                                                                        100    Mar-08
                                                                                                                                                                             May-08
                                                                                                                                                                                       Jul-08
                                                                                                                                                                                                Sep-08
                                                                                                                                                                                                         Nov-08
                                                                                                                                                                                                                  Jan-09
                                                                                                                                                                                                                            Mar-09
                                                                                                                                                                                                                                       May-09
                                                                                                                                                                                                                                                  Jul-09
                                                                                                                                                                                                                                                              Sep-09
                                                                                                                                                                                                                                                                          Nov-09
                                                                                                                                                                                                                                                                                      Jan-10
                                                                                                                                                                                                                                                                                                   Mar-10
                                                                                                                                                                                                                                                                                                             May-10
  80
        Mar-08
                  May-08
                            Jul-08
                                     Sep-08


                                                       Jan-09
                                              Nov-08


                                                                 Mar-09
                                                                            May-09
                                                                                       Jul-09
                                                                                                   Sep-09


                                                                                                                           Jan-10
                                                                                                               Nov-09


                                                                                                                                        Mar-10
                                                                                                                                                  May-10




                                                                                                                                                                                        Domestic trade                                                                 Foreign trade

Source: CEIC, DBS Vickers                                                                                                                                  Source: CEIC, DBS Vickers


Appendix 10: Port Lump Sum Price Index (Domestic Trade, Appendix 11: Port Lump Sum Price Index (Foreign Trade,
Sep2006=100)                                            Sep2006=100)

Crude oil tariff (domestic trade) jumped in mid-2009, but                                                                                                  Iron ore tariff (foreign trade) gradually increased since early-
decreased slightly in early-2010.                                                                                                                          2009.

Coal and iron ore tariffs (domestic trade) continued their upward Coal and crude oil tariffs maintained roughly unchanged.
trends.

  130       Sep 06 = 100                                                                                                                                     180      Sep 06 = 100
  125                                                                                                                                                        170
  120                                                                                                                                                        160
                                                                                                                                                             150
  115
                                                                                                                                                             140
  110
                                                                                                                                                             130
  105                                                                                                                                                        120
  100                                                                                                                                                        110
   95                                                                                                                                                        100
   90                                                                                                                                                         90
                                                                                                                                                                    Feb-08
                                                                                                                                                                              Apr-08
                                                                                                                                                                                       Jun-08
                                                                                                                                                                                                Aug-08
                                                                                                                                                                                                         Oct-08
                                                                                                                                                                                                                  Dec-08
                                                                                                                                                                                                                           Feb-09
                                                                                                                                                                                                                                     Apr-09
                                                                                                                                                                                                                                                Jun-09
                                                                                                                                                                                                                                                           Aug-09
                                                                                                                                                                                                                                                                       Oct-09
                                                                                                                                                                                                                                                                                   Dec-09
                                                                                                                                                                                                                                                                                               Feb-10
                                                                                                                                                                                                                                                                                                        Apr-10
         Feb-08
                   Apr-08
                            Jun-08
                                     Aug-08
                                              Oct-08
                                                       Dec-08
                                                                Feb-09
                                                                          Apr-09
                                                                                     Jun-09
                                                                                                Aug-09
                                                                                                            Oct-09
                                                                                                                        Dec-09
                                                                                                                                    Feb-10
                                                                                                                                             Apr-10




                                Coal                                 Iron ore                                                    Crude oil                                              Coal                                  Iron ore                                                      Crude oil

Source: CEIC, DBS Vickers                                                                                                                                  Source: CEIC, DBS Vickers




                                                                                                                                                                                                                                                                                                                 Page 151
Industry Focus
China Port Sector




Appendix 12: Non-containerised Cargo Throughput                                                             Appendix 13: Energy Consumption Breakdown in China
Breakdown 2008                                                                                              2009

Coal, petroleum and metal ore accounted for 83% of total port Coal is still a major source of energy and accounted for nearly
throughput.                                                   70% of total energy consumption.


           Others                                                                                                                                                   Oil
            26%                                                                                                                                                    18%
                                                                                             Coal
                                                                                             32%



                                                                                                                                                                              Renewable
                                                                                                                                                                                energy
                                                                                                                                                                                 10%

                                                                                                                                                                            Natural
                                                                                                             Coal                                                             gas
                                                                                                             69%                                                              3%
       Metal Ore                                                              Petroleum
         25%                                                                     17%

Source: CEIC, DBS Vickers                                                                                   Source: CEIC , DBS Vickers




Appendix 14: Total Railway Length                                                                           Appendix 15: Fixed Asset Investment: Railways


Slow growth before 2009.                                                                                    Over RMB2tn investments for the three years from 2010 to
                                                                                                            2012.
240,000 km railway to be added from 2010 to 2012.


 km                                                                                                          RMB m
 120,000                                                                                              12%    800,000                                                                         80%
                                                                                                             700,000                                                                         70%
 100,000                                                                                              10%
                                                                                                                                                                                             60%
                                                                                                             600,000
  80,000                                                                                              8%                                                                                     50%
                                                                                                             500,000                                                                         40%
  60,000                                                                                              6%     400,000                                                                         30%
                                                                                                             300,000                                                                         20%
  40,000                                                                                              4%
                                                                                                                                                                                             10%
                                                                                                             200,000
  20,000                                                                                              2%                                                                                     0%
                                                                                                             100,000                                                                         -10%
        0                                                                                             0%            0                                                                        -20%
             2001
                    2002
                            2003
                                   2004
                                          2005
                                                 2006
                                                        2007
                                                               2008
                                                                      2009
                                                                             2010F
                                                                                     2011F
                                                                                              2012F




                                                                                                                         2004

                                                                                                                                2005

                                                                                                                                       2006

                                                                                                                                              2007

                                                                                                                                                     2008

                                                                                                                                                            2009

                                                                                                                                                                    2010F

                                                                                                                                                                             2011F

                                                                                                                                                                                     2012F




                           Length (LHS)                                Growth (RHS)