China Merchants to acquire port stake

Firm diversifies in 1.62b yuan investment

China Merchants Holdings (International), a leading mainland port operator, plans to invest 1.62 billion yuan in a port in Guangdong province to diversify into oil and bulk cargo terminal handling.

The company will take a 45 per cent stake in Zhanjiang port, while the local government will pay 1.98 billion yuan for the rest of the terminal.

The stake is priced at 42.6 times Zhanjiang port's 2006 net profit, which jumped 1.76 times to 84.44 million yuan. The company valued the target net assets at 2.6 billion yuan.

Analysts said China Merchants is paying too much for the stake, which is priced higher than its own shares. China Merchant shares traded at 37.9 times historical earnings while Cosco Pacific, another major mainland port operator, traded at 19.6 times.

Zhanjiang port is on the Leizhou Peninsula in southwest Guangdong, and is ranked No15 in terms of general cargo throughput in the country. In the first eight months of this year, cargo volume at the port rose 3 per cent, compared with 15.7 per cent nationwide.

Hutchison Port Holdings was believed to have been in talks to invest in Zhanjiang port but eventually decided to switch its attention to ports in Guangxi province.

Zhanjiang is a city near Sinopec's refinery base in Maoming, which has crude processing capacity of 13.5 million tonnes per year.

'This is a strategic step for us to diversify into oil and bulk cargo business,' said To Wing-sing, deputy managing director at China Merchants.

The port is mainly engaged in terminal services for large-bulk cargo, iron ore and crude oil. It achieved a total cargo throughput of more than 50 million tonnes in 2006, about 80 per cent of which was in iron ore and oil.

'Investing in Zhanjiang is another strategic move to fill the gaps in southwest China,' the company said in a statement to the stock exchange.

China Merchants said that in the next five years, the company and the Zhanjiang government planned to develop two port areas in the city, Baoman Port Zone and Donghai Island Port Zone, to take advantage of their proximity to the 300,000-deadweight-tonne deep waterway.

Construction of the Baoman Port Development Zone has started with two 50,000-dwt container berths under construction.

China Merchants has been expanding in the south of the country. In June, the company paid 7.27 billion yuan for a 14 per cent stake in the second phase of Shenzhen's Dachan Bay project.

Bulk handler

2006 large-bulk cargo throughput in Zhanjiang, in tonnes, 50m