THE asset shuffle between listed shipping firm Florens and parent China Ocean Shipping Co. (Cosco) of an interest in Container Terminal Eight East provides final confirmation of what benchmark to use when valuing container port businesses in Hong Kong. The veil of secrecy in this rather private neck of the territory's shipping and container industry has been shed finally in the sale of Cosco's 50 per cent interest in Container Terminal Eight East at 13 times 1995 earnings. Florens, the container leasing group, has bought the stake in an issue of shares 555 million shares at $4.38 each, raising $2.6 billion. Forecast earnings per share in 1995, to December 31, are expected to be enhanced marginally from 32.61 cents to 32.63 cents. In 1996, net profit is expected to rise from a pre-deal figure of $430 million to a post-deal figure of $630 million. Earnings per share, however is expected to rise marginally again, to about 42 cents. Yesterday's deal announcement, which has been in the marketplace since May, follows the 14.8 times prospective earnings price tag put on the Kadoorie sale of 6.47 per cent in Modern Terminals (MTL) in September. A 15-time earnings price tag was placed on another operator, Sea-Land Orient Terminals, in the listing of the parent company New World Development's interest in its infrastructure interests. Having stood in darkness this time last year, investors can confidently compute a value on Hutchison Whampoa's Hong Kong International Terminals and Wharf's MTL. In an estimate from Crosby Securities, HIT is valued at $37 billion and MTL is valued at $21 billion. This brings a little more certainty where, even in June this year, there was none. Should Container Terminals 9, 10 and 11 continue to be held up despite the Government's best efforts, these valuations are sure to rise. This year has seen sentiment among mainland Chinese interests and terminal operators in Hong Kong turn lukewarm towards further major expansion in the territory's extensive terminal berth capacity. According to one of the best studies of late on the industry, published by James Capel, this is because intra-Pacific business, a big driver in container throughput growth, is due to fall off. While the territory will remain a hub for China-linked business operators in the territory, and mainland container port business interests, are keen to see throughput migrate to other venues along China's extensive coast. Hong Kong container throughput in 1994 was 11.05 million 20 ft equivalent units (teus), making it the biggest handler of this business in the world. Of this total 9.15 million teus came through Kwai Chung. With existing capacity this is expected to rise and plateau at 11.55 million teus in 1998, including CT9, James Capel analyst Carl Wong says. If CT10 and 11 go ahead, capacity will rise to 13.95 million teus by 2000. Given the trends identified by industry analysts this extra capacity might not be needed this century, barring a collapse in port throughput in China or an unexpected and unprecedented explosion in China trade. If the above occurs, container terminal operators in Hong Kong will be printing money for the foreseeable future and if it does not, low enthusiasm for capacity expansion here will make CT10 and 11 less likely to go ahead, thus underpinning handling rates. Whatever the outcome, the outlook for Hong Kong port business, which handled more than 30 per cent of Hong Kong's gross domestic product in 1993, looks pretty good. On completion of the deal with Cosco, Florens stands as the purest play on the sector. A new window of disclosure has been opened on the industry as HIT and MTL remain privately held. Container port earnings will amount to between 30 per cent and 40 per cent of Florens earnings, with container leasing remaining the biggest earner. However, profit margins are fat. James Cape estimates the operating margin at Hutchison Whampoa's Terminals 4, 6 and 7 was 67.9 per cent in 1994, rising to 69.9 per cent in 1997. At MTL margin in 1993 was 65 per cent, rising to 69 per cent a year later, a level it is expected to hold to 1998. The quality of earnings ought to be rated along side those of utilities. There could be some share price weakness in Florens in the wake of the deal, but this is expected to be more than respectably made up for over the long term given the prospects of the company, its business and the interest of big institutions in getting a slice of the action.