Port operators in China’s Liaoning province see shares rally on integration plan

PUBLISHED : Wednesday, 14 June, 2017, 3:09pm
UPDATED : Wednesday, 14 June, 2017, 10:45pm

Dalian Port Corporation shares rallied 16.3 per cent in Hong Kong on Wednesday morning, its biggest daily gain since March last year, on news of port management consolidation in Liaoning province.

The government of China’s northeast province signed a framework agreement with China Merchants Group to establish a new Liaoning Port Group through the integration of Dalian Port and Yingkou Port Group.

All the shares of listed port operators in Liaoning province surged on Wednesday, with Dalian Port leading the rally and closing in Hong Kong at HK$1.6, its highest in more than 10 months. Dalian Port’s Shanghai traded shares reached the daily gain limit of 10 per cent to 3.2 yuan. Yingkou port and Jinzhou port both rallied by their 10 per cent daily limit to 3.7 yuan and 4.6 yuan respectively.

“The integration is a good excuse for investors to speculate on port operators,” said Victor Au, chief operating officer at Delta Asia Securities. “The port industry has been lightly traded for a long time.”

It will strengthen the government’s “going out” programme to encourage exports, he added.

As a result of the integration, Corrine Png, chief executive of Crucial Perspective, a Singapore-based research firm, said the newly formed Liaoning Port group “will emerge as a big port group in China instead of just a small-medium sized port”.

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Liaoning Port Group expects to complete its establishment and undertake the necessary mixed-ownership reform by the end of 2017, and complete the integration of other port management entities within Liaoning province by the end of 2018.

“The aim of the integration is to develop the infrastructure and transport links of northeast China and build the foundation for establishing the planned China-Japan-South Korea free trade zone in the future,” said Png, whose firm focuses on listed Asian transport companies.

In the four months from January to April 2017, Dalian port handled 3 million Twenty-foot equivalent units (TEU) of cargo, up 2 per cent year on year while Yingkou port’s volume remained unchanged at 2 million TEUs. Dalian and Yingkou are the 8th and 9th largest container ports in China, with 4 per cent and 3 per cent market share of China’s total container port volume respectively.

The integration reflects the determination of the Chinese government to further carry out SEO reforms
Victor Au, chief operating officer at Delta Asia Securities

Market watchers are treating the integration as a continuation of the Chinese government’s programme to merge China’s state owned enterprises(SOEs).

“I think this is part of the Chinese government’s SOE reform to streamline SOEs [in the port industry],” added Png. “[It’s just like]what the Chinese government has done for the Chinese shipping sector, to eliminate excessive competition and duplication of resources.”

“The integration reflects the determination of the Chinese government to further carry out SOE reforms,” said Au.

Analysts expect to see more such integration in China’s port industry as the country draws up its infrastructure blueprint for China’s new Silk Road.

Png expects China Merchants, as well as Cosco Shipping Ports, to continue to consolidate in China and invest more overseas.

“This will further elevate China Merchants and Cosco Shipping Ports as one of the world’s largest port operators globally and leverage China’s expanding trade links with the rest of the world,” she added. “A significant amount of capital will be required to fund China Merchants and Cosco Shipping Ports’ investment forays in the coming years but they should not have difficulty gaining access to financing from domestic banks.”