29 July 2013 1H13E aggregate earnings slightly...

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Container Port - China

1H13E aggregate earnings slightly down; Buy Dalian Port

1H13E aggregate port earnings growth to decline 1% YoY We forecast the aggregate earnings growth for ports in 1H to slightly decrease 1% YoY with a strong growth at Dalian Port (up 27% YoY), moderate earnings growth at China Merchants (up 12% YoY) and a mild growth at Tianjin Port (up 3% YoY) to be offset by significant earnings fall at HPH Trust (down 22% YoY) and a moderate fall in core earnings at Cosco Pacific (down 8% YoY). We believe Dalian’s earnings growth will mainly be lifted by its oil business rebound. Thanks to overseas ports’ contribution, China Merchants should be able to achieve 12% YoY solid earnings growth. HPH Trust’s performance was hit by both HK labor strike in Apr-2013, poor volume growth at both HK and Yantian as well as deteriorated throughput mix as its ports started to enhance exposure to transshipment market.

1H13 port throughput volume up by 8% YoY – in line China’s top-8 ports registered 8% YoY throughput volume growth in 1H13, in line with our full-year growth forecast. Solid growth is mainly driven by strong domestic trade volume (up 17% YoY), as well as increasing transshipment (T/S) cargos, which is categorized under foreign trade. Due to the rising mix of domestic trade and T/S trade boxes, overall profit margin for container ports got squeezed in 1Q13 and the trend is highly likely to continue in 2Q13. We expect 1-3% EBIT margin contraction at container ports that we cover.

Stock picks – Buy Dalian Port, Tianjin Port and Cosco Pacific We reiterate our Buy rating on Dalian Port and believe the upcoming strong 2Q13 earnings will be a positive catalyst to the share price. We continue to expect a rebound of its oil business, which is driven by oil throughput recovery on low base, rising storage capacity and ASP, as well as surging LNG business. We like TianjinPort given its stable earnings growth and attractive valuation. We also have a Buy rating on Cosco Pacific as we believe management will use the gains from CIMC stake to pay more dividends and to acquire new ports, which could be a catalyst to the share price. We continue to have an unfavorable view of HPH Trust given its weak earnings and expected street earnings downgrades after the 2Q13 results are announced.

Table 1: 1H13 earnings preview and results date Earnings Announcement Company name Ticker Currency 1H13 1H12 YoY Date Dalian Port 2880.HK Rmb 380 300 27% 29-Aug China Merchants* 144.HK HKD 1,803 1,609 12% 30-Aug Tianjin Port 3382.HK HKD 382 371 3% 28-Aug Cosco Pac 1199.HK USD 164 179 -8% 27-Aug HPH Trust HPHT SP HKD 813 1,043 -22% 30-Jul Aggregate HKD 4,755 4,791 -1% Source: Company information, BofA Merrill Lynch Global Research estimates

Industry Overview

Equity | China | Sea Ports 29 July 2013

Mandy Qu, CFA >> +852 2536 3425 Research Analyst Merrill Lynch (Hong Kong) [email protected] Edmond Huang, CFA >> +852 2161 7807 Research Analyst Merrill Lynch (Hong Kong) [email protected]

Figure 1: 3M ports’ stock-price movement

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Chiw an WharfTJ Port-A

HSCEIHPHT

Dalian PortSIPG

Xiamen PortCMHI

Tianjin PortCosco Pac

Source: Bloomberg. Price as of Jul 26, 2013

Port Monthly (Jun 2013) – 1H volume growth up by 8% YoY, driven by transshipment (8 Jul 2013)

Global transportation sector – 8th Annual China Tour: the end of the turbocharged economy (2 Jul 2013)

Port Monthly (May 2013) – May throughput growth slowed to 7% on weak domestic trade (6 Jun 2013)

China Container Port – Expect earnings recovery in 2013; buy Cosco Pac and Dalian (3 Dec 2012)

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Conta iner Por t - China 29 Ju ly 2013

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1H throughput growth up 8% YoY driven by T/S China’s top-8 ports posted 8% YoY container throughput growth in 1H13 (62mn TEUs), in line with our full-year forecast. Foreign and domestic trades grew 6% YoY and 17% YoY, respectively. While import/export remained slow, we believe the upward growth of foreign boxes was mainly attributable to strong international transshipment. Big transshipment ports, ie, Shanghai and Ningbo, posted 6% and 12% YoY foreign trade volume growth, respectively, in 1H13, and their incremental volume accounted for 62% of the total increased volume of the top-eight ports.

Regional breakdown: In 1H13, volume of BHR ports topped with 13% YoY growth (17.5mn TEUs), followed by peers in YRD (8.5% YoY, at 24.3mn TEUs) and PRD (2.3% YoY, 16.4mn TEUs). Two of our top picks – Dalian Port and Tianjin Port – delivered strong growth of 23% YoY and 10% YoY, respectively, in 1H13, thanks to their geographic location in BHR, where were relatively less impacted by poor EU/US trade.

Table 2: Top-8 ports throughput and breakdown by foreign and domestic trade Jun-13 1H13 2012 TEU mn Total yoy% For. yoy% Dom. yoy% Total yoy% For. yoy% Dom. yoy% Total yoy% For. yoy% Dom. yoy% Shanghai 2.7 3.9% 2.5 3.1% 0.3 11.9% 16.2 7.3% 14.5 6.4% 1.7 16.3% 31.5 3.5% 28.5 3.2% 3.0 6.4% Shenzhen 1.9 4.6% 1.8 5.4% 0.1 -9.4% 10.7 2.9% 10.1 2.8% 0.6 5.7% 22.2 4.8% 21.1 4.3% 1.1 15.5% Qingdao 1.3 4.3% 0.9 2.2% 0.4 9.0% 7.7 10.1% 5.4 -0.6% 2.3 46.9% 14.0 9.6% 10.5 0.3% 3.5 51.8% Ningbo 1.4 16.1% 1.4 16.9% 0.1 5.7% 8.1 10.8% 7.6 11.8% 0.5 -2.5% 14.7 7.6% 13.6 7.3% 1.1 11.1% Guangzhou 1.0 8.7% 0.4 6.7% 0.6 10.0% 5.7 1.1% 2.2 10.8% 3.5 -4.3% 11.5 6.1% 4.3 28.8% 7.3 -3.9% Tianjin 1.0 14.2% 0.5 14.1% 0.5 14.4% 5.6 10.2% 3.0 9.9% 2.6 10.6% 10.5 4.0% 5.6 0.0% 4.9 9.1% Xiamen 0.7 10.4% 0.5 2.8% 0.1 58.4% 3.7 11.7% 3.0 5.0% 0.7 58.1% 7.4 16.7% 6.1 14.4% 1.2 29.8% Dalian 0.8 16.8% 0.4 8.5% 0.3 29.8% 4.2 22.6% 2.4 6.9% 1.9 50.5% 7.7 26.3% 4.6 2.3% 3.1 95.0% Total 10.8 8.2% 8.4 6.6% 2.4 14.2% 61.9 8.1% 48.3 5.9% 13.7 16.6% 119.5 7.2% 94.3 5.1% 25.2 16.3% Pearl River Delta 2.9 6.0% 2.2 5.6% 0.7 7.3% 16.4 2.3% 12.4 4.1% 4.0 -3.0% 33.7 5.2% 25.3 7.8% 8.3 -1.7% Yangtze River Delta 4.2 7.8% 3.8 7.6% 0.4 10.3% 24.3 8.5% 22.1 8.2% 2.2 11.1% 46.2 4.8% 42.1 4.5% 4.1 7.6% Bohai Rim 3.1 10.4% 1.9 6.9% 1.2 16.2% 17.5 12.9% 10.8 3.8% 6.8 31.4% 32.2 11.2% 20.7 0.6% 11.5 37.1% Source: CEIC, Chinese Port.

Chart 1: Throughout growth in major regions

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Source: CEIC, BofA Merrill Lynch Global Research

Chart 2: Throughout growth in top-8 ports

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Margin to be hurt due to worse throughput mix As seen in 1H13 throughput breakdown, domestic trade throughput volume in 1H13 strongly grew 17% YoY to 13.7mn TEUs, whereas foreign trade boxes were only moderately up 6% YoY to 48.3mn TEUs. The aggregate throughput mix of domestic trade in total trade volume has slightly increased to 22% in 1H13 vs 21% in 2012. However, for ports in Bohai Rim, their domestic trade exposure has increased from 36% in 2012 to 39% in 1H13. Our analysis shows that for foreign trade growth, like those in Shanghai, Ningbo and Shenzhen, majority of the growth is driven by foreign transshipment volume, instead of high-margin O&D cargos. Hence, margin will also be affected as T/S cargos are much less profitable than O&D cargos.

With the worsening of throughput mix, we expect an across-the-board ASP drop and profit margin contraction for all ports, varying on different exposures to domestic and transshipment trades. Table 3: Throughput mix at top-8 ports Jun-13 1H13 2012 Foreign Domestic Foreign Domestic Foreign Domestic Shenzhen 96% 4% 95% 5% 95% 5% Ningbo 94% 6% 93% 7% 93% 7% Shanghai 90% 10% 90% 10% 90% 10% Xiamen 80% 20% 82% 18% 83% 17% Qingdao 68% 32% 70% 30% 75% 25% Dalian 57% 43% 56% 44% 60% 40% Tianjin 53% 47% 54% 46% 54% 46% Guangzhou 38% 62% 39% 61% 37% 63% Total 78% 22% 78% 22% 79% 21% Yangtze River Delta 91% 9% 91% 9% 91% 9% Pearl River Delta 76% 24% 75% 25% 75% 25% Bohai Rim 60% 40% 61% 39% 64% 36% Source: Chineseport

Stock picks: DL Port, TJ Port & Cosco Pacific We are positive on the two northern-region ports listcos - Dalian Port and Tianjin Port Dev, whose volume get hurt less by weak US/EU market trades, thanks to their higher exposures to domestic and intra-Asia trades though the low-profit margin domestic trade has squeezed container business margin. We prefer Dalian Port the most, and expect its interim earnings to reach RMB380mn, up 27% YoY, thanks to strong contribution of its container and oil throughput business (accounting for 70% of total earnings). We believe the strong interim results will be a catalyst for the stock, and reiterate our Buy rating with a price objective of HK$2.7.

We retain Buy on Cosco Pacific given the positive catalysts: 1) high dividend payout ratio of 40% will be unchanged and also applies to the US$470mn before-tax gain from the CIMC stake disposal in 1H13 financials; 2) a special dividend payment if considered necessary; 3) US$1,220mn proceeds from CIMC stake disposal will be used mainly on port business, with an acquisition of new port likely in the short term; 4) rising demand on container leasing expected to lead a strong performance in May-Aug 2013; and 5) Pier 3 of Piraeus port will start operations from July 2013 to meet increasing demand. We believe the current valuation remains attractive, especially with a high dividend yield in 2013. Special dividend could be a positive surprise.


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We reiterate our Underperform rating on HPHT and believe a poor 2Q13 will be a near-term headwind. Our recent visit to Kwai Tsing Port and our meeting with HPHT officials reveals that (1) throughput volume in 2Q13 was weak (likely to be flattish) after the port workers’ strike in April; management has lowered the full-year volume growth target to 0-3% YoY from 5% YoY; (2) due to a soft top-line growth as well as cost increase (4-5% YoY), growth in earnings and distributable income for HPHT is likely to slow. Management lowered its 2013 DPU guidance to HK$0.4 from the previously targeted HK$0.44; and (3) RMB3bn capex in the Yantian West Port Phase II development remained unchanged and, for 2013, recurring capex is RMB300m.

Figure 2: Port sector share-price performance

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Source: Bloomberg. * Price as of Jul 26, 2013

Figure 3: YTD 2013 share price performance of port stocks

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Source: Bloomberg. * Price as of Jul 26, 2013

Figure 4: Port sector forward P/E (x)

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Source: Company data, BofA Merrill Lynch Global Research estimates

Figure 5: Port sector forward P/B (x)

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Average: 1x

-1SD: 0.9x

Source: Company data, BofA Merrill Lynch Global Research estimates


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Valuation of port companies Table 4: Port comparables Company name Blbg Mkt Cap QRQ Price BofAML PE PB EV/EBITDA Dividend Yield (%) tickers (US$ mn) (local) rating 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E China Ports Dalian Port 2880 HK 1,460 C-1-7 1.57 BUY 7.3 6.2 5.7 0.4 0.4 0.4 6.5 6.1 5.9 5.5 6.4 7.0 Tianjin Port Dev. 3382 HK 842 C-1-7 1.06 BUY 8.4 7.6 7.2 0.6 0.6 0.5 6.4 6.2 6.0 4.8 5.3 5.5 China Merchants * 144 HK 7,823 C-2-8 24.35 NEUTRAL 14.0 12.5 11.7 1.2 1.2 1.1 8.3 7.4 6.9 3.2 3.6 3.9 Cosco Pacific * 1199 HK 3,952 C-1-7 10.92 BUY 41.0 85.6 77.3 6.7 6.5 6.1 6.5 6.1 5.5 1.0 0.5 0.5 Hutchison Port Trust HPHT SP 6,620 C-3-8 0.76 U/P 24.7 23.3 22.1 0.8 0.8 0.8 14.3 13.5 13.0 7.2 7.3 7.6 Shenzhen Chiwan 200022 CH 1,071 n.a. 11.31 Not rated 11.8 11.0 9.7 1.5 1.4 1.3 8.7 7.8 6.8 4.3 4.5 NA Shanghai Intl Port 600018 CH 9,092 n.a. 2.45 Not rated 10.5 9.5 9.3 1.1 1.0 1.0 7.2 6.9 6.6 5.3 5.5 6.0 Xiamen Intl Port 3378 HK 351 n.a. 1.00 Not rated 7.6 7.2 8.1 NA NA NA 5.4 5.4 5.1 NA NA NA Average - China 15.7 20.4 18.9 1.8 1.7 1.6 7.9 7.4 7.0 4.5 4.7 5.1 Global peers DP World DPW DU 13,280 n.a. 16.00 Not rated 23.8 20.3 16.9 1.6 1.5 1.4 12.2 10.8 9.6 1.5 1.7 2.1 Ports of Tauranga POT NZ 1,563 n.a. 14.40 Not rated 24.6 23.6 22.3 2.6 2.5 2.5 16.5 15.2 14.2 3.1 3.2 3.3 Hamburger Hafen HHFA GR 1,746 n.a. 18.1 Not rated 21.3 18.6 15.7 2.2 2.1 2.0 5.7 5.4 5.0 3.1 3.4 3.7 Intl Container Ter ICT PM 4,364 B-1-8 92.8 BUY 35.4 29.7 23.0 3.8 3.4 3.0 13.7 11.3 8.9 0.8 0.8 0.8 Average - Intl 26.3 23.1 19.5 2.5 2.4 2.2 12.0 10.7 9.4 2.1 2.3 2.5 Average - overall 21.0 21.7 19.2 2.1 2.0 1.9 10.0 9.0 8.2 3.3 3.5 3.8 Source: Bloomberg, BofAML estimates. * EV/EBITDA adjusted for Associate/JCE. Priced as of Jul 26, 2013. Where stock is not covered by BofAML, consensus estimates are used.

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Dalian Port PD-H

Expecting strong 2Q on oil business rebound; Buy

Strong 2Q results should be near-term catalyst Dalian Port will announce 1H13 results on 29 Aug 2013. We expect 1H earnings to grow by 27% YoY to RMB380mn, accounting for 51% of our FY13E. Our FY12E earnings of RMB751mn (+25% YoY) are 11% above consensus as we believe the street hasn’t fully factored in the strong oil business recovery. We maintain our Buy rating, and expect the strong 2Q results to be a near-term catalyst.

Expecting 1H13 earnings to lift by 27% YoY to RMB380mn Dalian Port is likely to achieve RMB380mn NP in 1H13, up 27% YoY. We expect 2Q earnings to surge by 52% YoY to RMB197mn, from +7% YoY (RMB183mn) in 1Q, thanks to the strong oil business. We believe robust oil throughput volume, higher oil storage income, and rising LNG units all helped to boost oil business growth. We don’t expect abnormal items in the 2Q13 results. Financial cost is likely to be below that of 1Q, given that financial expense increase would only take place in 2H13 after start of operation of one bulk and one RORO terminal.

Oil throughput surged 19% YoY in 2Q Dalian Port would have handled 10mn tons of oil in 2Q13, up by 19% YoY, in our view. Together with 11mn tons handled in 1Q (+1% YoY), 1H13 total oil throughput would reach 21mn tons, up by 9% YoY. The solid growth in 2Q is mainly driven by 1) refill of PetroChina’s 1.75mn oil storage tank from Oct 2012; 2) rising trans-shipment oil throughput; and 3) low base in 2Q12.

Container throughput strong driven by domestic trade Dalian Port’s container throughput volume grew by 23% YoY to 4.2mn TEUs, mainly driven by domestic trade (1.9mn TEUs, +51% YoY) whereas foreign trade (2.4mn TEUs, +7% YoY) growth was much weaker. The strong domestic trade boxes growth should only offer limited contribution to earnings given low margins.

Estimates (Dec)

(HK$) 2011A 2012A 2013E 2014E 2015E Net Income (Adjusted - CNY mn) 666.34 600.09 750.84 880.31 963.06 EPS 0.171 0.154 0.193 0.226 0.247 EPS Change (YoY) -24.3% -9.9% 25.1% 17.2% 9.4% Dividend / Share 0.068 0.057 0.077 0.090 0.099 Free Cash Flow / Share (CNY) -0.163 0.045 0.230 0.335 0.352

Valuation (Dec) 2011A 2012A 2013E 2014E 2015E P/E 9.2x 10.2x 8.2x 7.0x 6.4x Dividend Yield 4.3% 3.6% 4.9% 5.8% 6.3% EV / EBITDA* 9.15x 7.36x 6.53x 6.18x 5.93x Free Cash Flow Yield* -13.12% 3.62% 18.50% 27.00% 28.38%

Earnings Preview BUY

Equity | China | Sea Ports 29 July 2013


Stock Data Price HK$1.57 Price Objective HK$2.70 Date Established 28-Mar-2013 Investment Opinion C-1-7 Volatility Risk HIGH 52-Week Range HK$1.39-HK$2.01 Mrkt Val / Shares Out (mn) US$896 / 4,426.0 Market Value (mn) HK$6,949 Average Daily Volume 2,024,649 BofAML Ticker / Exchange DLPTF / HKG Bloomberg / Reuters 2880 HK / 2880.HK ROE (2013E) 5.7% Net Dbt to Eqty (Dec-2012A) 64.6% Est. 5-Yr EPS / DPS Growth 6.1% / 7.0% Free Float 26.5%


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iQprofile SM Dalian Port PD-H Key Income Statement Data (Dec) 2011A 2012A 2013E 2014E 2015E (CNY Millions) Sales 3,795 4,454 4,827 5,052 5,229 Gross Profit 1,307 1,397 1,503 1,594 1,668 Sell General & Admin Expense (449) (491) (514) (533) (552) Operating Profit 1,087 1,210 1,308 1,396 1,468 Net Interest & Other Income (178) (377) (346) (279) (245) Associates 87 74 125 137 145 Pretax Income 995 906 1,086 1,254 1,368 Tax (expense) / Benefit (238) (222) (243) (275) (301) Net Income (Adjusted) 666 600 751 880 963 Average Fully Diluted Shares Outstanding 4,426 4,426 4,426 4,426 4,426 Key Cash Flow Statement Data Net Income 666 600 751 880 963 Depreciation & Amortization 655 954 1,133 1,179 1,216 Change in Working Capital (226) (377) 12 (21) (28) Deferred Taxation Charge NA NA NA NA NA Other Adjustments, Net 135 122 321 246 208 Cash Flow from Operations 1,230 1,299 2,217 2,284 2,360 Capital Expenditure (1,951) (1,100) (1,200) (800) (800) (Acquisition) / Disposal of Investments (2,273) (15) (14) (5) (2) Other Cash Inflow / (Outflow) 71 686 50 55 58 Cash Flow from Investing (4,153) (429) (1,164) (751) (744) Shares Issue / (Repurchase) 0 0 0 0 0 Cost of Dividends Paid (674) (221) (300) (352) (385) Cash Flow from Financing 1,898 (606) (1,537) (738) (2,169) Free Cash Flow (721) 199 1,017 1,484 1,560 Net Debt 8,805 9,029 8,622 7,720 6,736 Change in Net Debt 5,651 212 (406) (902) (985) Key Balance Sheet Data Property, Plant & Equipment 17,242 17,499 17,675 17,397 17,079 Other Non-Current Assets 6,035 5,617 5,595 5,581 5,571 Trade Receivables 847 1,064 1,153 1,207 1,250 Cash & Equivalents 2,254 2,507 2,023 2,818 2,264 Other Current Assets 797 1,142 1,175 1,210 1,247 Total Assets 27,174 27,829 27,622 28,213 27,410 Long-Term Debt 10,028 9,553 9,446 9,339 8,000 Other Non-Current Liabilities 738 709 709 709 709 Short-Term Debt 1,031 1,983 1,200 1,200 1,000 Other Current Liabilities 1,737 1,609 1,749 1,821 1,875 Total Liabilities 13,534 13,854 13,104 13,068 11,584 Total Equity 13,640 13,975 14,518 15,144 15,826 Total Equity & Liabilities 27,174 27,829 27,622 28,213 27,410 iQmethod SM - Bus Performance* Return On Capital Employed 3.9% 3.8% 4.2% 4.5% 4.7% Return On Equity 5.4% 4.7% 5.7% 6.4% 6.8% Operating Margin 28.6% 27.2% 27.1% 27.6% 28.1% EBITDA Margin 45.9% 48.6% 50.6% 51.0% 51.3% iQmethod SM - Quality of Earnings* Cash Realization Ratio 1.8x 2.2x 3.0x 2.6x 2.5x Asset Replacement Ratio 3.4x 1.3x 1.1x 0.7x 0.7x Tax Rate (Reported) 23.9% 24.5% 22.4% 22.0% 22.0% Net Debt-to-Equity Ratio 64.6% 64.6% 59.4% 51.0% 42.6% Interest Cover 4.5x 2.6x 3.0x 3.7x 4.2x Key Metrics Analyst Exchange Rate 0.88 0.88 0.88 0.88 0.88

Company Description Located at the southern tip of Northeast China,

Dalian Port is the leading port in this Region. In 2008, Dalian Port handled 4.4mn TEUs of container boxes and 34.9mn tons of oil, accounting for 68% and 52% market share in Northeast China.

Investment Thesis As the largest oil port and third-largest container

port in northeast China, Dalian Port is well positioned to benefit from the revitalization of the local economy and China's increasing dependence on imported oil. We believe 2013 will be a recovery year for Dalian Port, with earnings turning around to +19% YoY from -15% YoY in 2012, driven by the strong recovery of the oil business. We expect growth to accelerate from here.

Stock Data Price to Book Value 0.4x


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Chart 1: P/E band

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Tianjin Port DEV

Expecting 3% YoY earnings growth in 1H13

Stable earnings growth on mild bulk and solid container biz Tianjin Port plans to announce 1H13 results on 28 Aug 2013. We expect the numbers to be moderate with earnings growth of 3% YoY to HK$382mn, accounting for 49% of our FY13E earnings of HK$779mn. Our FY13E is in line with consensus. The earnings growth is mainly driven by a mild bulk throughput lift and a solid container volume throughput increase. We reiterate our Buy rating.

Expecting 1H13 earnings of HK$382mn (+3% YoY) We expect flattish earnings growth for the 56.81%-owned Tianjin Port Co. (600717.CH) in 2Q13 with attributable NP of HK$200mn, given moderate top-line growth and rising financing costs on higher borrowing cost. We believe associate earnings will grow steadily in 2Q on Euroasia ramp-up. FX gains in 1H13 would be lower than that of 1H12. We don’t expect exceptional gains/losses in 2Q.

Overall bulk throughput slightly up driven by iron ore In 5M13, Tianjin Port, as a whole, handled 48mn tons of iron ore (+24% YoY), 26mn tons of coal (-21% YoY), and 18mn tons of crude oil (-2% YoY). Combined throughput for these three major commodities that account for over 90% of the port’s total bulk throughput grew slightly by 3% YoY to 92mn tons. We believe the dramatic increase of iron ore throughput was due to restocking for both steel mills and ore traders. The significant volume drop of coal is due to weak coal demand from Southern China and fierce competition from imported coal.

Container volume up 11% YoY but mix likely weaker Container throughput at Tianjin Port increased by 11% YoY to 5.6mn TEUs, supported by both domestic (10% YoY, 5.6mn TEUs) and foreign trade boxes (11% YoY, 2.6mn TEUs). We believe the solid foreign trade growth is mainly driven by trans-shipment volume. The deteriorated throughput mix would cut ASP.

Estimates (Dec)

(HK$) 2011A 2012A 2013E 2014E 2015E Net Income (Adjusted - mn) 713 706 779 860 903 EPS 0.116 0.115 0.126 0.140 0.147 EPS Change (YoY) 25.0% -1.1% 10.3% 10.5% 4.9% Dividend / Share 0.046 0.046 0.051 0.056 0.059 Free Cash Flow / Share 0.298 (0.013) 0.319 0.330 0.348

Valuation (Dec) 2011A 2012A 2013E 2014E 2015E P/E 9.15x 9.25x 8.38x 7.59x 7.23x Dividend Yield 4.37% 4.33% 4.77% 5.27% 5.53% EV / EBITDA* 7.11x 6.89x 6.43x 6.16x 5.97x Free Cash Flow Yield* 28.10% -1.18% 30.09% 31.18% 32.87%


Equity | Hong Kong | Sea Ports 29 July 2013


Stock Data Price HK$1.06 Price Objective HK$1.40 Date Established 26-Mar-2013 Investment Opinion C-1-7 Volatility Risk HIGH 52-Week Range HK$0.790-HK$1.31 Mrkt Val / Shares Out (mn) US$841 / 6,158.0 Market Value (mn) HK$6,527 Average Daily Volume 2,097,681 BofAML Ticker / Exchange TJIPF / HKG Bloomberg / Reuters 3382 HK / 3382.HK ROE (2013E) 7.3% Net Dbt to Eqty (Dec-2012A) 24.5% Est. 5-Yr EPS / DPS Growth 17.8% / 17.8% Free Float 37.0%


10

iQprofile SM Tianjin Port DEV Key Income Statement Data (Dec) 2011A 2012A 2013E 2014E 2015E (HK$ Millions) Sales 16,228 17,644 18,813 19,681 20,509 Gross Profit 3,523 3,973 4,228 4,500 4,735 Sell General & Admin Expense (1,775) (1,938) (2,113) (2,282) (2,465) Operating Profit 2,088 2,178 2,232 2,321 2,377 Net Interest & Other Income (381) (404) (346) (230) (190) Associates 229 319 316 344 366 Pretax Income 1,936 2,093 2,202 2,435 2,552 Tax (expense) / Benefit (308) (376) (471) (523) (547) Net Income (Adjusted) 713 706 779 860 903 Average Fully Diluted Shares Outstanding 6,158 6,158 6,158 6,158 6,158 Key Cash Flow Statement Data Net Income 713 706 779 860 903 Depreciation & Amortization 891 898 1,062 1,116 1,170 Change in Working Capital 154 525 26 (22) (20) Deferred Taxation Charge NA NA NA NA NA Other Adjustments, Net 846 143 1,298 1,281 1,293 Cash Flow from Operations 2,604 2,272 3,164 3,235 3,346 Capital Expenditure (770) (2,349) (1,200) (1,200) (1,200) (Acquisition) / Disposal of Investments (698) (559) 587 (324) (346) Other Cash Inflow / (Outflow) 214 1,005 (11) (8) (8) Cash Flow from Investing (1,254) (1,903) (624) (1,532) (1,554) Shares Issue / (Repurchase) 0 0 0 0 0 Cost of Dividends Paid (285) (283) (311) (344) (361) Cash Flow from Financing 269 277 (4,460) (2,333) (349) Free Cash Flow 1,834 (77) 1,964 2,035 2,146 Net Debt 5,386 5,298 3,404 2,264 1,011 Change in Net Debt (2,000) (88) (1,894) (1,370) (1,443) Key Balance Sheet Data Property, Plant & Equipment 15,629 17,080 17,218 17,302 17,333 Other Non-Current Assets 9,564 10,250 9,673 10,006 10,360 Trade Receivables 3,321 3,905 4,163 4,356 4,539 Cash & Equivalents 4,575 5,264 3,345 2,485 3,738 Other Current Assets 474 743 778 818 863 Total Assets 33,563 37,241 35,178 34,967 36,832 Long-Term Debt 6,205 7,813 4,000 2,000 2,000 Other Non-Current Liabilities 173 219 230 242 254 Short-Term Debt 3,756 2,749 2,749 2,749 2,749 Other Current Liabilities 3,421 4,798 5,119 5,328 5,537 Total Liabilities 13,555 15,580 12,098 10,320 10,540 Total Equity 20,008 21,661 23,080 24,647 26,292 Total Equity & Liabilities 33,563 37,241 35,178 34,967 36,832 iQmethod SM - Bus Performance* Return On Capital Employed 6.2% 5.9% 5.8% 6.3% 6.3% Return On Equity 7.4% 6.9% 7.3% 7.7% 7.7% Operating Margin 12.9% 12.3% 11.9% 11.8% 11.6% EBITDA Margin 18.4% 17.4% 17.5% 17.5% 17.3% iQmethod SM - Quality of Earnings* Cash Realization Ratio 3.7x 3.2x 4.1x 3.8x 3.7x Asset Replacement Ratio 0.9x 2.6x 1.1x 1.1x 1.0x Tax Rate (Reported) 15.9% 17.9% 21.4% 21.5% 21.4% Net Debt-to-Equity Ratio 26.9% 24.5% 14.7% 9.2% 3.8% Interest Cover 4.7x 4.6x 5.4x 8.1x 9.6x Key Metrics

Company Description A subsidiary of Tianjin Development, Tianjin Port

Development (TPD) engages mainly in container port and bulk port operations. In 2008, TPD handled 4.4mn TEUs of container boxes, accounting for 52% of local market.

Investment Thesis We expect TPD to achieve stable earnings growth

in 2013/14E, driven by a bulk throughput recovery and container business performance on a tariff hike with resilient throughput growth. However, we are concerned about the bulk business' (coal/iron ore) long-term growth, given fiercer competition in the Bohai Rim and as domestic supply picks up on rail transportation capacity expansion.



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12

COSCO Pacific

CIMC disposal gain to help boost 2Q earnings

Strong 1H13 results after booking CIMC disposal gain Cosco Pacific will report 2013 interim results on 27 Aug 2013. We expect the reported earnings to be US$554mn, after including the one-off gain from CIMC stake disposal. Core earnings in 2Q would be US$98mn, in our view, slightly down by 4% YoY mainly due to CIMC’s earnings drop. We expect higher dividend payment in 2013 and potential port asset acquisitions in the short term. Maintain Buy.

2Q13 core earnings likely to be down 4% YoY We expect 2Q core earnings to reach US$98mn, -4% YoY, decelerating from the 14% YoY earnings decline in 1Q13. We forecast 1H13 total core earnings at US$164mn, -8% YoY, mainly due to 25% YoY CIMC earnings decline. We expect 2% port earnings growth and 8% leasing earnings growth in 2Q. The weak port earnings growth is due to 1) higher tax rate at key ports; 2) bigger loss at Xiamen Port; and 3) deteriorated throughput mix. We expect container fleet size to post single-digit growth after adding 15,000 TEUs in 1H13 and flattish leasing yield.

CIMC disposal gain to be recognized in 1H13 In 1H13, US$470mn (before tax) one-off gain will be booked. This one-off gain will be subject to 40% dividend payout and will help to lift 2013 DPS to US$0.12, implying 8.5% dividend yield. We believe management will use major portion of the rest of the gain to acquire new ports. We see M&A likely in the short term.

1H13 overall port throughput growth solid at 10% YoY Equity-adjusted throughput grew by slightly lower rate of 8% YoY. Ports in Bohai Rim (+13% YoY) led the growth, driven by strong domestic trade; ports in Yangtze River Delta and Pearl River Delta all posted 10% YoY volume growth, followed by only 1% YoY growth at overseas ports. Top 5 port earnings contributors realized aggregated volume growth of 5% YoY.

Estimates (Dec)

(US$) 2011A 2012A 2013E 2014E 2015E Net Income (Reported - mn) 389 342 729 351 390 EPS 0.143 0.125 0.266 0.127 0.141 EPS Change (YoY) 1.2% -12.5% 112.3% -52.1% 10.7% Dividend / Share 0.057 0.051 0.106 0.051 0.059 Free Cash Flow / Share (0.124) (0.139) (0.220) 0.096 0.112

Valuation (Dec) 2011A 2012A 2013E 2014E 2015E P/E 9.81x 11.24x 5.29x 11.04x 9.97x Dividend Yield 4.08% 3.60% 7.56% 3.62% 4.17% EV / EBITDA* 13.56x 11.09x 9.42x 8.10x 7.44x Free Cash Flow Yield* -8.69% -9.83% -15.61% 6.88% 8.04%


Equity | Hong Kong | Sea Transport 29 July 2013


Stock Data Price HK$10.92 Price Objective HK$13.00 Date Established 26-May-2013 Investment Opinion C-1-7 Volatility Risk HIGH 52-Week Range HK$9.27-HK$13.32 Mrkt Val / Shares Out (mn) US$3,856 / 2,739.0 Market Value (mn) HK$29,910 Average Daily Volume 6,648,470 BofAML Ticker / Exchange CSPKF / HKG Bloomberg / Reuters 1199 HK / 1199.HK ROE (2013E) 17.3% Net Dbt to Eqty (Dec-2012A) 44.5% Est. 5-Yr EPS / DPS Growth 9.0% / 9.0% Free Float 48.8%


13

iQprofile SM COSCO Pacific Key Income Statement Data (Dec) 2011A 2012A 2013E 2014E 2015E (US$ Millions) Sales 599 736 818 880 933 Gross Profit 259 315 353 405 444 Sell General & Admin Expense (89) (92) (97) (101) (106) Operating Profit 179 227 260 308 344 Net Interest & Other Income (53) (68) (75) (74) (69) Associates 276 223 195 168 175 Pretax Income 402 382 380 402 450 Tax (expense) / Benefit (29) (28) (107) (35) (41) Net Income (Reported) 389 342 729 351 390 Average Fully Diluted Shares Outstanding 2,712 2,729 2,739 2,750 2,761 Key Cash Flow Statement Data Net Income (Adjusted) 364 342 259 351 390 Depreciation & Amortization 144 168 205 233 246 Change in Working Capital 21 182 33 4 8 Deferred Taxation Charge NA NA NA NA NA Other Adjustments, Net (197) (265) (99) (73) (83) Cash Flow from Operations 332 427 398 515 560 Capital Expenditure (667) (806) (1,000) (250) (250) (Acquisition) / Disposal of Investments (1) (52) 0 0 0 Other Cash Inflow / (Outflow) 210 422 144 132 132 Cash Flow from Investing (458) (437) (856) (118) (118) Shares Issue / (Repurchase) 0 18 18 19 21 Cost of Dividends Paid (162) (133) (212) (216) (148) Cash Flow from Financing (44) 200 289 (561) (412) Free Cash Flow (335) (379) (602) 265 310 Net Debt 1,757 1,875 1,448 1,388 1,209 Change in Net Debt 352 195 733 (120) (240) Key Balance Sheet Data Property, Plant & Equipment 3,156 3,718 4,573 4,650 4,715 Other Non-Current Assets 2,466 2,554 1,854 1,891 1,934 Trade Receivables 260 222 224 226 228 Cash & Equivalents 581 848 1,840 1,617 1,586 Other Current Assets 9 22 25 27 28 Total Assets 6,472 7,364 8,516 8,411 8,491 Long-Term Debt 1,743 1,948 2,638 2,404 2,194 Other Non-Current Liabilities 49 57 64 69 73 Short-Term Debt 595 775 650 600 601 Other Current Liabilities 205 366 404 414 426 Total Liabilities 2,592 3,146 3,756 3,487 3,293 Total Equity 3,880 4,217 4,760 4,924 5,198 Total Equity & Liabilities 6,472 7,364 8,516 8,411 8,491 iQmethod SM - Bus Performance* Return On Capital Employed 2.8% 3.1% 3.0% 3.4% 3.8% Return On Equity 11.1% 9.0% 17.3% 7.7% 8.2% Operating Margin 29.9% 30.9% 31.9% 35.0% 36.8% EBITDA Margin 53.9% 53.7% 56.9% 61.5% 63.2% iQmethod SM - Quality of Earnings* Cash Realization Ratio 0.9x 1.2x 0.5x 1.5x 1.4x Asset Replacement Ratio 4.6x 4.8x 4.9x 1.1x 1.0x Tax Rate (Reported) 6.7% 7.3% 12.6% 8.7% 9.2% Net Debt-to-Equity Ratio 45.3% 44.5% 30.4% 28.2% 23.3% Interest Cover 3.4x 3.3x 3.5x 4.2x 5.0x Key Metrics

Company Description COSCO Pacific is a container-related conglomerate

with exposure to container leasing, container terminals & container manufacturing and other businesses. Its container leasing fleet is the 6th largest in the world. It has been expanding its investments in container terminals in HK and China over the past few yrs. Concern: Unfavorable regional exposure and passive investment (as opposed to management).

Investment Thesis We have a Buy rating on Cosco Pacific as we

believe there is higher upside potential for the stock vs other container port peers. Our bullish view is based on (1) the strongest 2013 earnings growth among peers, and (2) robust growth of the leasing business. We believe the stock's current valuation is attractive, compared with the historical and sector averages.



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15

China Merchants

Moderate 1H13 results; core earnings up by 12% YoY

Port solid, CIMC soft; to benefit from tax reform China Merchants will announce 2013 interim results on 30 Aug 2013. We expect the company to post core earnings growth of 12% YoY, driven by moderate throughput increase and mild CIMC contribution. We believe CMHI should benefit from tax reform (sales tax to VAT) given that Shenzhen government has agreed to not levy tax on charges to overseas registered shipping firms. We maintain our Neutral rating.

1H13 core earnings to grow by 12% YoY to HK$1.8bn Due to deconsolidation of Nanshan Development in 1H13, revenue growth is incomparable. However, excluding the impact of tax reform (sales to VAT tax), we expect organic port revenue to fall slightly by 2% YoY to HK$3.2bn given the weak volume growth at West Shenzhen (-1% YoY), despite the strong volume ramp-up at other ports, especially CICT. We expect EBIT margin contraction for the business due to weaker throughput mix and cost pressure. We forecast associates to post 10% YoY earnings increase, with stable growth at SIPG and contribution from Port of Djibouti and Terminal Link, where consolidation began in 1H13. We project earnings from JCE to decline mainly due to lower ASP and margin contraction of Qingdao Port, as its volume growth is mainly driven by low-margin domestic trade.

Throughput growth solid at 9% YoY in 1H13 China Merchants’ ports registered solid throughput growth of 9% YoY and handled 31.2mn TEUs of boxes. This high single-digit growth is mainly driven by growth at Qingdao Port (+45% YoY, 2.8mn TEUs), overseas ports (+183% YoY, 547,000 TEUs), as well as newly acquired Kaohsiung Port (541,000 TEUs). However, the West Shenzhen port overall posted 1% YoY volume decline, mainly due to 6% YoY volume drop at SCT, the key earnings contributor, whereas CCT recovered by 7% YoY. HK ports saw mild volume increase of 3% YoY.

Estimates (Dec)

(HK$) 2011A 2012A 2013E 2014E 2015E Net Income (Reported - mn) 5,569 3,818 4,328 4,844 5,234 EPS 2.26 1.53 1.74 1.94 2.09 EPS Change (YoY) -6.0% -32.2% 13.4% 11.7% 7.5% Dividend / Share 0.983 0.700 0.782 0.873 0.939 Free Cash Flow / Share 1.10 0.898 0.118 2.41 2.59

Valuation (Dec) 2011A 2012A 2013E 2014E 2015E P/E 10.78x 15.89x 14.01x 12.55x 11.67x Dividend Yield 4.04% 2.88% 3.21% 3.59% 3.86% EV / EBITDA* 18.84x 15.38x 20.47x 18.95x 17.97x Free Cash Flow Yield* 4.47% 3.69% 0.485% 9.91% 10.70%

Earnings Preview NEUTRAL

Equity | Hong Kong | Industrials/Multi-Industry 29 July 2013

Edmond Huang, CFA >> +852 2161 7807 Research Analyst Merrill Lynch (Hong Kong) [email protected] Mandy Qu, CFA >> +852 2536 3425 Research Analyst Merrill Lynch (Hong Kong) [email protected]

Stock Data Price HK$24.35 Price Objective HK$27.50 Date Established 27-Mar-2013 Investment Opinion C-2-8 Volatility Risk HIGH 52-Week Range HK$20.50-HK$29.00 Mrkt Val / Shares Out (mn) US$7,817 / 2,490.5 Market Value (mn) HK$60,644 Average Daily Volume 3,051,405 BofAML Ticker / Exchange CMHHF / HKG Bloomberg / Reuters 144 HK / 0144.HK ROE (2013E) 9.2% Net Dbt to Eqty (Dec-2012A) 27.3% Est. 5-Yr EPS / DPS Growth 6.9% / 5.2% Free Float 44.0%


16

iQprofile SM China Merchants Key Income Statement Data (Dec) 2011A 2012A 2013E 2014E 2015E (HK$ Millions) Sales 9,470 11,022 7,490 7,911 8,356 Gross Profit 4,052 4,335 3,009 3,252 3,470 Sell General & Admin Expense (1,224) (1,302) (521) (547) (574) Operating Profit 3,518 4,625 2,940 3,196 3,395 Net Interest & Other Income (874) (1,166) (943) (1,016) (1,031) Associates 3,675 2,967 3,994 4,408 4,693 Pretax Income 6,319 6,426 5,991 6,588 7,057 Tax (expense) / Benefit (1,015) (1,163) (856) (911) (982) Net Income (Reported) 5,569 3,818 4,328 4,844 5,234 Average Fully Diluted Shares Outstanding 2,465 2,491 2,491 2,497 2,508 Key Cash Flow Statement Data Net Income (Adjusted) 4,202 3,373 4,328 4,844 5,234 Depreciation & Amortization 1,412 1,412 1,597 1,705 1,773 Change in Working Capital (1,351) 4,254 23 (9) (10) Deferred Taxation Charge NA NA NA NA NA Other Adjustments, Net 408 (2,706) (874) 85 125 Cash Flow from Operations 4,671 6,333 5,075 6,625 7,121 Capital Expenditure (1,962) (4,097) (4,781) (616) (635) (Acquisition) / Disposal of Investments (821) 0 (5,615) 0 0 Other Cash Inflow / (Outflow) 3 1,140 1,009 536 414 Cash Flow from Investing (2,780) (2,957) (9,387) (80) (221) Shares Issue / (Repurchase) 30 2 0 1 1 Cost of Dividends Paid (2,660) (1,683) (1,196) (1,948) (2,180) Cash Flow from Financing (1,963) (5,704) 4,063 (4,930) (5,052) Free Cash Flow 2,709 2,236 294 6,010 6,486 Net Debt 18,206 14,630 21,527 18,403 15,190 Change in Net Debt 2,158 (3,576) 6,897 (3,124) (3,214) Key Balance Sheet Data Property, Plant & Equipment 18,269 16,863 17,502 16,797 16,024 Other Non-Current Assets 53,645 54,551 63,303 64,316 65,475 Trade Receivables 2,776 1,400 1,470 1,544 1,621 Cash & Equivalents 6,520 4,192 3,943 5,558 7,406 Other Current Assets 5,585 460 449 471 495 Total Assets 86,795 77,466 86,667 88,685 91,020 Long-Term Debt 17,216 11,801 15,853 14,268 12,841 Other Non-Current Liabilities 3,353 3,182 2,162 2,284 2,412 Short-Term Debt 7,510 7,021 9,617 9,693 9,755 Other Current Liabilities 4,200 1,780 1,818 1,909 2,005 Total Liabilities 32,279 23,784 29,450 28,154 27,013 Total Equity 54,807 53,682 57,218 60,531 64,007 Total Equity & Liabilities 87,086 77,466 86,667 88,685 91,020 iQmethod SM - Bus Performance* Return On Capital Employed 3.9% 4.9% 3.1% 3.2% 3.3% Return On Equity 13.5% 8.6% 9.2% 9.7% 9.9% Operating Margin 37.1% 42.0% 39.3% 40.4% 40.6% EBITDA Margin 52.1% 54.8% 60.6% 62.0% 61.8% iQmethod SM - Quality of Earnings* Cash Realization Ratio 0.8x 1.7x 1.2x 1.4x 1.4x Asset Replacement Ratio 1.4x 2.9x 3.0x 0.4x 0.4x Tax Rate (Reported) 13.2% 16.9% 14.3% 13.8% 13.9% Net Debt-to-Equity Ratio 33.2% 27.3% 37.6% 30.4% 23.7% Interest Cover 4.0x 4.0x 3.1x 3.1x 3.3x Key Metrics

Company Description China Merchants is the largest port operator in

China, with operations across Bohai Rim, Yangtze River Delta, Pearl River Delta, and Southwest China. It holds interests in seven of the top eight ports: Hong Kong, Shenzhen, Ningbo, Shanghai, Qingdao, Tianjin and Zhanjiang, which account for 70% of China container throughput. It also is engaged in container manufacturing.

Investment Thesis With a presence in seven of the top eight container

ports, we believe China Merchants has the best portfolio of container ports in China. We like its strong management team with an excellent track record and financial discipline. However, we believe China Merchants will have difficulties delivering strong earnings growth in the near future, given strong headwinds, in the context of a sluggish global trade outlook.



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18

Hutchison Port Holdings Trust

Expect a disappointing 2Q with earnings down by 24% YoY

Weaker fundamentals; 2Q13E earnings decline accelerated HPHT will announce its 1H13 results on 30 Jul 2013. We expect the 2Q13 results to be disappointing with earnings down 24% YoY. In our view, poor results could be mainly due to throughput decline at both HK and Yantian ports in 2Q13 as well as further deteriorated throughput mix, which hurt ASP and margins. Keep U/P.

Expect 2Q13 earnings to drop by 24% YoY, DPS of HK$0.2 We forecast HPHT’s 1H13 earnings to decline by 20% YoY to HK$834mn, which implies 2Q13 earnings of HK$453mn, down by 24% YoY. Revenues are expected to decline 2% YoY to HK$3.1bn due to poor throughput volume at both HK and Yantian ports, though ACT may provide some support as throughput was diverted to ACT from HIT during port workers’ strike in April 2013. We expect EBIT profit margin to contract to 29%, down from 29.3% in 1Q13 and 36% in 2Q12, due to continuously deteriorated throughput mix. We expect interim DPS of HK$0.2.

Street likely to lower FY13 earnings forecast Our FY13/14/15 earnings forecast is now 4%/5%/3% below consensus, which has been lowered recently. The 1H13 earnings estimate of HK$834mn only accounts for 40% of our current FY13 forecast. We don’t expect a solid pick up in demand from the overseas market in 2H13, hence throughput growth should continue to stay weak and ports will continue to compete for low-margin transshipment cargos. We see downside risk to our FY13 estimates. Management has lowered its FY13E DPS in 2013 to HK$0.4, vs street consensus of HK$0.43.

HK and Yantian ports’ 1H13 throughput volume declined HK port’s throughput declined by 11% YoY in Apr-May 2013, with 3.6mn TEUs handled, deteriorated from 8% YoY volume drop in 1Q13. Yantian also posted 1% decrease in 2Q throughput, worsened from 6% YoY growth achieved in 1Q13.

Estimates (Dec)

(HK$) 2011A 2012A 2013E 2014E 2015E Net Income (Adjusted - mn) 1,970 2,288 2,080 2,206 2,326 EPS 0.226 0.263 0.239 0.253 0.267 EPS Change (YoY) -34.1% 16.1% -9.1% 6.1% 5.4% Dividend / Share 0.377 0.512 0.424 0.429 0.447 Free Cash Flow / Share 0.344 0.420 0.567 0.579 0.604

Valuation (Dec) 2011A 2012A 2013E 2014E 2015E P/E 26.09x 22.42x 24.69x 23.28x 22.07x Dividend Yield 6.39% 8.70% 7.20% 7.27% 7.58% EV / EBITDA* 17.80x 14.61x 14.35x 13.47x 12.97x Free Cash Flow Yield* 5.83% 7.13% 9.62% 9.83% 10.24%

Earnings Preview UNDERPERFORM

Equity | Singapore | Sea Ports 29 July 2013


Stock Data Price US$0.760 Price Objective US$0.690 Date Established 30-Apr-2013 Investment Opinion C-3-8 Volatility Risk HIGH 52-Week Range US$0.685-US$0.865 Mrkt Val / Shares Out (mn) US$6,619 / 8,708.9 Average Daily Volume 13,545,700 BofAML Ticker / Exchange XHSFF / SES Bloomberg / Reuters HPHT SP / HPHT.SI ROE (2013E) 3.1% Net Dbt to Eqty (Dec-2012A) 26.9% Est. 5-Yr EPS / DPS Growth 10.0% / -4.5% Free Float 63.0%


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iQprofile SM Hutchison Port Holdings Trust Key Income Statement Data (Dec) 2011A 2012A 2013E 2014E 2015E (HK$ Millions) Sales 9,735 12,427 12,800 13,440 13,977 Gross Profit 6,493 8,160 8,384 8,870 9,225 Sell General & Admin Expense (190) (262) (277) (291) (306) Operating Profit 3,718 4,398 4,380 4,849 5,142 Net Interest & Other Income (416) (598) (726) (851) (871) Associates 140 162 177 183 190 Pretax Income 3,443 3,961 3,831 4,181 4,461 Tax (expense) / Benefit (425) (377) (530) (680) (769) Net Income (Adjusted) 1,970 2,288 2,080 2,206 2,326 Average Fully Diluted Shares Outstanding 8,709 8,709 8,709 8,709 8,709 Key Cash Flow Statement Data Net Income 1,970 2,288 2,080 2,206 2,326 Depreciation & Amortization 2,150 2,753 2,899 2,906 2,909 Change in Working Capital 385 (1,139) 201 102 135 Deferred Taxation Charge NA NA NA NA NA Other Adjustments, Net 280 510 845 912 976 Cash Flow from Operations 4,786 4,411 6,024 6,126 6,346 Capital Expenditure (1,794) (751) (1,084) (1,080) (1,090) (Acquisition) / Disposal of Investments (56,527) 0 0 0 0 Other Cash Inflow / (Outflow) 365 328 272 279 286 Cash Flow from Investing (57,956) (422) (811) (802) (804) Shares Issue / (Repurchase) 42,495 0 0 0 0 Cost of Dividends Paid (1,245) (4,132) (3,695) (3,735) (3,890) Cash Flow from Financing 61,298 (4,160) (3,659) (4,901) (5,009) Free Cash Flow 2,992 3,661 4,940 5,045 5,256 Net Debt 21,162 22,973 21,455 19,866 18,215 Change in Net Debt 11,921 144 (1,517) (1,589) (1,652) Key Balance Sheet Data Property, Plant & Equipment 26,765 26,248 25,666 25,062 24,384 Other Non-Current Assets 100,896 99,278 97,950 96,632 95,395 Trade Receivables 3,007 3,023 3,112 3,267 3,397 Cash & Equivalents 7,891 6,169 7,722 8,145 8,677 Other Current Assets 144 132 155 155 155 Total Assets 138,702 134,850 134,604 133,261 132,009 Long-Term Debt 29,020 29,109 29,144 27,979 26,859 Other Non-Current Liabilities 12,476 12,268 12,069 11,887 11,707 Short-Term Debt 33 33 33 33 33 Other Current Liabilities 9,151 7,934 8,245 8,483 8,729 Total Liabilities 50,679 49,343 49,491 48,382 47,328 Total Equity 88,023 85,507 85,113 84,879 84,681 Total Equity & Liabilities 138,702 134,850 134,604 133,261 132,009 iQmethod SM - Bus Performance* Return On Capital Employed 3.9% 3.1% 3.0% 3.2% 3.4% Return On Equity 5.4% 3.4% 3.1% 3.4% 3.7% Operating Margin 38.2% 35.4% 34.2% 36.1% 36.8% EBITDA Margin 60.3% 57.5% 56.9% 57.7% 57.6% iQmethod SM - Quality of Earnings* Cash Realization Ratio 2.4x 1.9x 2.9x 2.8x 2.7x Asset Replacement Ratio 0.8x 0.3x 0.4x 0.4x 0.4x Tax Rate (Reported) 12.3% 9.5% 13.8% 16.3% 17.2% Net Debt-to-Equity Ratio 24.0% 26.9% 25.2% 23.4% 21.5% Interest Cover 8.9x 7.3x 6.0x 5.7x 5.9x Key Metrics

Company Description Hutchison Port Holdings Trust owns and operates

three key port assets in Pearl River Delta, namely HIT, COSCO-HIT, and Yantian port, which enjoy 60%/46% market share in HK and Shenzhen respectively. The trust also owns 3 inland river ports whose operations are complementary to the trust's deep-water sea ports.

Investment Thesis Our negative view is based on 1) underlying assets'

growth is likely to slow down on weaker exports in the Pearl River Delta area, 2) dividend payout should be stable in the ST, but likely to be negatively impacted due to equity reserve depletion after 2023E, rising interest costs and additional CAPEX for port capacity expansion and acquisitions, 3) likely interest rate increase will adversely affect valuation of dividend yield names, i.e., trusts.



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Chart 1: P/E band

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14

18

22

26

30

34

Mar

11

Sep

11

Mar

12

Sep

12

Mar

13

-1SD: 19x

+1SD: 25.7x

Av erage: 22.3x


Chart 2: P/B band

0.4

0.6

0.8

1.0

1.2

Mar

11

Sep

11

Mar

12

Sep

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Mar

13

Av erage: 0.7x

+1SD: 0.8x

-1SD: 0.6x



3%

6%

9%

12%

15%

Mar

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Sep

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Sep

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Av erage: 8%

+1SD: 10%

-1SD: 7%



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Price objective basis & risk China Merchants (CMHHF) Our 12-month price objective of HK$27.5 equals our NAV estimate, which is based on a sum-of-the-parts analysis. We use a 12x 2013E P/E for its Hong Kong ports, a 15x 2013E P/E for its other ports, BofAML estimates for CIMC (based on Baiding Rong's forecast), and BofAML estimates for other investments. These P/E multiples are based on sector averages. We believe the stock is reasonably valued at 2013/14E PE of 16x/14x, in line with its historical average. The risks to our price objective are: weaker-than-expected demand for Chinese manufactured products, travel disputes between China and other countries, the appreciation of the Chinese currency, and stronger-than-expected competition in the region.

COSCO Pacific (CSPKF) Our 12-month PO of HK$13 is based on our 2013E NAV. We use industry averages of 12x 2012E P/E to value Hong Kong and overseas ports, 15x 2012E P/E for its China ports, and estimated costs for new port investments. These multiples are 3 year average for sector average PE. The downside risks to our price objective are weaker than expected foreign trade growth, trade disputes between China and other countries, and the appreciation of the Chinese currency. Upside risks are a better than expected volume growth at Piraeus port.

Dalian Port PD-H (DLPTF) Our price objective of HK$2.7 is based on our 2013E NAV estimate (derived from our DCF model, assuming 11pct WACC and 2.0pct terminal growth). The downside risks to our price objective are: 1) a slowdown in China's exports, and 2) a sharp decrease in oil imports due to high oil prices. The upside risks are: 1) a higher-than-expected oil throughput growth on a lower crude-oil price, and 2) further government supporting policies that will boost earnings.

Hutchison Port Holdings Trust (XHSFF) We use a combination of DCF and DDM methodologies to arrive at our 12-month price objective of US$0.69 for HPHT. For DCF, we use a WACC of 10% (RFR of 3.5%, beta of 1.2, equity market premium of 6%) by assuming FCF growth to cease as of 2055 when the Yantian West Port Phase I concession expires. With this method, we derive an NPV of US$0.7. For DDM, we use CoE of 11%. Scenario I assumes the distributable income will last until the concession period expires and the NPV is US$0.71, whereas Scenario II assumes the distributable income would last until 2023, when the equity reserve was 100% drawn out and the trust starts to distribute 100% of its earnings thereafter, the NPV is US$0.64. We believe Scenario I is more likely to happen, as the trust could use shareholder loans to extract cash from the underlying entities. We weigh these two discounted dividend values at 70%/30% and arrive at our NPV of US$0.62. We average these two NPVs (US$0.70 and US$0.68), to arrive at our PO of US$0.69. The PO implies 7% div yield in 2013/14E. Upside risks to our PO are: 1) better-than-expected export growth in PRD in 2013, 2) improved margin, 3) HIT's acquisition of berths in HK. Downside risks to our PO are: 1) worse-than-expected port throughput growth, 2) ASP deterioration, 3) increasing interest rates, 4) lower distributable income, 5) failure to extend ports' concession period.


22

Tianjin Port DEV (TJIPF) Our PO of HK$1.4 is based on our NAV estimate (derived from our DCF model, assuming an 11pct WACC and 1.5pct terminal growth). Downside risks: 1) worse-than-expected export growth, 2) labor costs continue to inflate, and 3) diversion of bulk cargo to nearby ports. Upside risk to our PO is stronger-than-expected bulk cargo import driven by China's domestic demand and higher than expected cargo tariff hike in Tianjin than regional peers.

Link to Definitions Industrials Click here for definitions of commonly used terms. Analyst Certification We, Mandy Qu, CFA and Edmond Huang, CFA, hereby certify that the views expressed in this research report about securities and issuers accurately reflect our respective models applied in the analysis. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.

APR - Transportation Coverage Cluster Investment rating Company BofA Merrill Lynch ticker Bloomberg symbol Analyst BUY Airports of Thailand AIPBF AOT TB Kaseedit Choonnawat Asia Aviation Plc XZWTF AAV TB Kaseedit Choonnawat Beijing Cap Airp BJCHF 694 HK YingYing Hou Cathay Pac Air CPCAF 293 HK Paul Dewberry Cebu Air Inc. XNFEF CEB PM YingYing Hou China Airlines CHAWF 2610 TT Paul Dewberry China Eastern CHEAF 670 HK Paul Dewberry China Shipping Container Line CITAF 2866 HK Nathan Gee, CFA China Southern CHKIF 1055 HK Paul Dewberry Daqin Railway DAQIF 601006 CH Mandy Qu, CFA Eva Airways EVAYF 2618 TT Paul Dewberry Garuda Indonesia Persero Tbk XWIOF GIAA IJ YingYing Hou Int'l Container Terminal Services, Inc ICTEF ICT PM Dante R. Tinga, Jr. Orient Overseas (International) Limited OROVF 316 HK Nathan Gee, CFA Pacific Basin PCFBF 2343 HK Nathan Gee, CFA Shanghai International Airport XAISF 600009 CH YingYing Hou Singapore Air SINGF SIA SP Paul Dewberry NEUTRAL BTS Growth Infrastructure Fund XYIYF BTSGIF TB Kaseedit Choonnawat China Shipping CSDXF 1138 HK Nathan Gee, CFA Guangshen Railway GNGYF 525 HK Mandy Qu, CFA UNDERPERFORM Air China Ltd-H AICAF 753 HK Paul Dewberry AirAsia BHD AIABF AIRA MK Paul Dewberry China COSCO-H CICOF 1919 HK Nathan Gee, CFA Evergreen Marine EVGQF 2603 TT Nathan Gee, CFA Hanjin Shipping Co Ltd XHSJF 117930 KS Nathan Gee, CFA Hutchison Port Holdings Trust XHSFF HPHT SP Mandy Qu, CFA Korean Air KRNRF 003490 KS Paul Dewberry Neptune Orient Lines NPTOF NOL SP Nathan Gee, CFA Nok Airlines XFXTF NOK TB Kaseedit Choonnawat SATS Ltd SPASF SATS SP YingYing Hou Thai Airways International TARWF THAI TB Kaseedit Choonnawat Tiger Airways Holdings Ltd. TAIRF TGR SP YingYing Hou U-Ming UMGMF 2606 TT Nathan Gee, CFA Wan Hai Lines WHILF 2615 TT Nathan Gee, CFA

http://research1.ml.com/C?q=q2kgl3P0V!1ZdEoqe4WVcw


23

APR - Transportation Coverage Cluster Investment rating Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Yang Ming Marine YMGXF 2609 TT Nathan Gee, CFA RVW STX Pan Ocean SPNOF 028670 KS Nathan Gee, CFA

Greater China - Conglomerates Coverage Cluster Investment rating Company BofA Merrill Lynch ticker Bloomberg symbol Analyst BUY Beijing Enterprises Holdings Limited BJINF 392 HK Vitus Leung COSCO Pacific CSPKF 1199 HK Mandy Qu, CFA Dalian Port PD-H DLPTF 2880 HK Mandy Qu, CFA Guangdong Investment GGDVF 270 HK Angello Chan HWL HUWHF 13 HK Karl Choi, CFA HWL -A HUWHY HUWHY US Karl Choi, CFA Shanghai Industrial SGHIF 363 HK Billy Ng, CFA Shun Tak - A SHTGY SHTGY US Billy Ng, CFA Shun Tak Holdings SHTGF 242 HK Billy Ng, CFA Tianjin Dev Hldg TJSCF 882 HK Billy Ng, CFA Tianjin Port DEV TJIPF 3382 HK Mandy Qu, CFA Wharf Hldg WARFF 4 HK Karl Choi, CFA Zhejiang Expressway ZHEXF 576 HK Mandy Qu, CFA NEUTRAL China Merchants CMHHF 144 HK Edmond Huang, CFA CITIC Pacific CTPCF 267 HK Billy Ng, CFA First Pacific Company Limited FPAFF 142 HK Karl Choi, CFA Jiangsu Expressway JEXYF 177 HK Mandy Qu, CFA MTRC MTRJF 66 HK Karl Choi, CFA Sichuan Expressway SEXHF 107 HK Mandy Qu, CFA Swire Pacif 'A' SWRAF 19 HK Karl Choi, CFA Swire Pacif 'A' SWRAY SWRAY US Karl Choi, CFA UNDERPERFORM Fosun International FOSUF 656 HK Billy Ng, CFA Hopewell Highway HHILF 737 HK Karl Choi, CFA Hopewell Highway HHILY HHILY US Karl Choi, CFA Hopewell Holdings Limited HOWWF 54 HK Karl Choi, CFA Hopewell Holdings Limited-A HOWWY HOWWY US Karl Choi, CFA Shenzhen Expressway SHZNF 548 HK Mandy Qu, CFA


24

Important Disclosures DLPTF Price Chart

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5.00

1-Jan-11 1-Jan-12 1-Jan-13DLPTF

B : Buy, N : Neutral, U : Underperform, PO : Price objective, NA : No longer valid, NR: No Rating

1-Jul:BQu

PO:HK$4.008-Dec

PO:HK$3.90

30-MarPO:HK$4.00

29-AugPO:HK$3.80

28-OctPO:HK$3.30

12-JanPO:HK$3.10

30-MarPO:HK$3.00

3-DecPO:HK$2.40

4-FebPO:HK$2.60

28-MarPO:HK$2.70

The Investment Opinion System is contained at the end of the report under the heading "Fundamental Equity Opinion Key". Dark grey shading indicates the security is restricted with the opinion suspended. Medium grey shading indicates the security is under review with the opinion withdrawn. Light grey shading indicates the security is not covered. Chart is current as of June 30, 2013 or such later date as indicated. CSPKF Price Chart

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1-Jan-11 1-Jan-12 1-Jan-13CSPKF


1-Jul:UQu

PO:HK$9.3024-Aug

PO:HK$9.6028-Oct:N

PO:HK$13

8-DecPO:HK$14

23-MarPO:HK$15

26-AprPO:HK$17

24-AugPO:HK$11

17-NovPO:HK$10

15-Feb:UPO:HK$11

3-Dec:BPO:HK$13

28-JanPO:HK$15

26-MarPO:HK$14

26-MayPO:HK$13

The Investment Opinion System is contained at the end of the report under the heading "Fundamental Equity Opinion Key". Dark grey shading indicates the security is restricted with the opinion suspended. Medium grey shading indicates the security is under review with the opinion withdrawn. Light grey shading indicates the security is not covered. Chart is current as of June 30, 2013 or such later date as indicated. TJIPF Price Chart

0.000.300.600.901.201.501.802.102.402.703.00

1-Jan-11 1-Jan-12 1-Jan-13TJIPF


1-Jul:BQu

PO:HK$3.203-Aug

PO:HK$3.0026-Aug

PO:HK$2.90

8-DecPO:HK$2.20

25-AugPO:HK$2.10

27-OctPO:HK$1.80

28-MarPO:HK$1.90

29-JulPO:HK$1.70

30-AugPO:HK$1.50

26-MarPO:HK$1.40

The Investment Opinion System is contained at the end of the report under the heading "Fundamental Equity Opinion Key". Dark grey shading indicates the security is restricted with the opinion suspended. Medium grey shading indicates the security is under review with the opinion withdrawn. Light grey shading indicates the security is not covered. Chart is current as of June 30, 2013 or such later date as indicated.


25

CMHHF Price Chart

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1-Jul:BJu

PO:HK$3430-Aug

PO:HK$3615-Sep

Qu

11-NovHuang

8-DecPO:HK$37

30-Aug:NPO:HK$26

17-NovPO:HK$24

29-MarPO:HK$26

30-AugPO:HK$25

3-DecPO:HK$23

1-JanPO:HK$25

28-JanPO:HK$28

The Investment Opinion System is contained at the end of the report under the heading "Fundamental Equity Opinion Key". Dark grey shading indicates the security is restricted with the opinion suspended. Medium grey shading indicates the security is under review with the opinion withdrawn. Light grey shading indicates the security is not covered. Chart is current as of June 30, 2013 or such later date as indicated. XHSFF Price Chart

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24-Apr:UQu

PO:US$0.862-Aug

PO:US$0.7016-Oct

PO:US$0.60

21-FebPO:US$0.70

26-JulPO:US$0.68

3-FebPO:US$0.71

30-AprPO:US$0.69

The Investment Opinion System is contained at the end of the report under the heading "Fundamental Equity Opinion Key". Dark grey shading indicates the security is restricted with the opinion suspended. Medium grey shading indicates the security is under review with the opinion withdrawn. Light grey shading indicates the security is not covered. Chart is current as of June 30, 2013 or such later date as indicated. Investment Rating Distribution: Industrials/Multi-Industry Group (as of 30 Jun 2013) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 45 58.44% Buy 36 80.00% Neutral 17 22.08% Neutral 16 94.12% Sell 15 19.48% Sell 12 80.00% Investment Rating Distribution: Transport/Infrastructure Group (as of 30 Jun 2013) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 73 43.71% Buy 53 72.60% Neutral 34 20.36% Neutral 25 73.53% Sell 60 35.93% Sell 39 65.00% Investment Rating Distribution: Global Group (as of 30 Jun 2013) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 1679 49.21% Buy 1259 74.99% Neutral 832 24.38% Neutral 616 74.04% Sell 901 26.41% Sell 591 65.59% * Companies that were investment banking clients of BofA Merrill Lynch or one of its affiliates within the past 12 months. For purposes of this distribution, a stock rated Underperform is included as a Sell.


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FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster*

Buy ≥ 10% ≤ 70% Neutral ≥ 0% ≤ 30%

Underperform N/A ≥ 20% * Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster.

INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock’s coverage cluster is included in the most recent BofA Merrill Lynch Comment referencing the stock.

Price charts for the securities referenced in this research report are available at http://pricecharts.ml.com, or call 1-800-MERRILL to have them mailed. The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: China Merchants, COSCO

Pacific, Tianjin Port Dev. MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: China

Merchants, COSCO Pacific. The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: China Merchants, COSCO

Pacific. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for

sale: China Merchants, COSCO Pacific, Dalian Port PD-H, Hutchison Port, Tianjin Port Dev. MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: China Merchants, COSCO

Pacific. MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company

within the next three months: China Merchants, COSCO Pacific, Tianjin Port Dev. The company is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates: COSCO

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27

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