Conversion Into Pure Port Play Comes at

Transcription

1 April 13, 2016 COSCO Pacific Conversion Into Pure Port Play Comes at a Cost; Maintain EW Industry View In-Line Stock Rating Equal-weight Price Target HK$9.07 While we welcome the outcome of the restructuring that has converted Cosco Pacific into a pure global port operator by trading out of its container leasing (Florens) business, we cut our earnings and PT in view of sustained weakness in global trade demand. What's Changed? From: To: COSCO Pacific Price Target HK$10.94 HK$9.07 A pure play port operator: With the sale of Florens Container Holdings Ltd, port earnings now contribute 100% of CPL s bottomline, which should support a potential re-rating given the perceived valuation discount led by market concerns about its exposure to the low-return container leasing business. However, we think any immediate market optimism is likely to be constrained by a potential earnings shortfall led by the acquisition of China Shipping Ports Development (CSPD) at high valuation multiples (47.2x 2014 P/E) as well as overall demand weakness for the port industry. In our view, it will take time for CPL to demonstrate its real competency as a pure port operator by delivering solid earnings growth for the next 2-3 years. Net profit cut 9-18%: Our earnings cuts factor in the discontinuation of Florens as well as contributions from the newly acquired CSPD and Kumport terminals. However, for e, we now project lower traffic growth at 7.2%, 5.8% and 1.6% p.a., in view of sluggish external demand for China s exports. Our earnings are 6-12% below consensus, as we expect 22% YoY and 2% YoY earnings declines in 2016 and 2017, followed by 7% growth in PT cut to HK$9.07: This reflects our lower earnings estimates, and we also allocate a higher probability to our bear case scenario (to 30% from 10%) to reflect more downside volume risks due to sustained macro headwinds. Our new PT implies 1% upside potential to current share price, so we maintain an EW. Valuation: The share price is down 20% in the past 12 months [vs 26% for HSI], and now trades at 11.5x 2016e P/E, in line with its historical mean of 12.4x, which we believe is fair. In the nearer-term, the special DPS of HK$0.8 for the business restructuring plan's approval, implies a total dividend yield of 12% for 2016, which provides some share price support. Risks: Upside risks to our price target include: 1) higher valuation multiples by the market; 2) higher-than-expected volume growth. Downside risks include: 1) currency depreciation risks; 2) overpaying for M&As. MORGAN STANLEY ASIA LIMITED+ Edward H Xu, CFA Edward.Xu@morganstanley.com Qianlei Fan, CFA Qianlei.Fan@morganstanley.com Watson Lau Watson.Lau@morganstanley.com Yufei Wu Yufei.Wu@morganstanley.com COSCO Pacific ( 1199.HK, 1199 HK ) Hong Kong/China Transportation & Infrastructure / China Stock Rating Equal-weight Industry View In-Line Price target HK$9.07 Up/downside to price target (%) 1 Shr price, close (Apr 12, 2016) HK$ Week Range HK$ Sh out, dil, curr (mn) 2,712 Mkt cap, curr (mn) US$3,154 EV, curr (mn) US$4,628 Avg daily trading value (mn) HK$57 Fiscal Year Ending 12/15 12/16e 12/17e 12/18e ModelWare EPS (US$) Prior ModelWare EPS (US$) Consensus EPS (US$) Revenue, net (US$ mn) 798 1,173 1,144 1,205 EBITDA (US$ mn) ModelWare net inc (US$ mn) P/E P/BV RNOA (%) ROE (%) EV/EBITDA Div yld (%) FCF yld ratio (%) (5.4) (20.4) (0.9) 1.1 Leverage (EOP) (%) Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare framework = Consensus data is provided by Thomson Reuters Estimates e = Morgan Stanley Research estimates Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. += Analysts employed by non -U.S. affiliates are not registered w ith FINRA, may n ot be associated person s of th e member an d may n ot be su bject to NASD/NYSE restrictions on communications w ith a subject company, public appearances and trading securities held by a research analyst account. 1

2 CPL: Financial Summary Exhibit 1: CPL: Financial Summary, E Profit and Loss Statement (US$ mn) E 2017E 2018E Ratio Analysis E 2017E 2018E Turnover ,173 1,144 1,205 Growth (%) Operating expenses (654) (598) (962) (942) (978) Turnover 8.9 (8.3) 47.0 (2.5) 5.3 Other operating income Operating profit 14.8 (8.6) 60.7 (2.1) 3.9 Operating profit Shar of profit from associates (25.2) Finance costs (58) (43) (70) (88) (107) Share of profit from JCEs Share of profit from associates Pretax profit (53.1) 26.1 (22.3) (1.6) 8.4 Share of profit from JCEs Net profit (58.3) 30.4 (21.5) (2.4) 7.4 Profit before taxation Recurrent net profit (21.5) (2.4) 7.4 Taxation (39) (41) (32) (32) (36) Port EBITDA Minority interest (20) (21) (13) (16) (18) EBITDA (50.7) (0.5) Net profit EPS (58.5) 24.7 (21.9) (2.4) 7.4 Recurrent net profit Recurrent EPS (5.7) 29.2 (21.5) (2.4) 7.4 DPS (58.4) (72.6) 7.4 Port EBTIDA EBITDA Margins (%) Reported EPS, (US$ Cents) Operating margin Recurrent EPS (US$ Cents) EBITDA margin DPS (US$ Cents) Net profit margin Return (%) Balance Sheet (US$ mn) E 2017E 2018E MW ROE Net fixed assets 4,069 4,008 4,911 5,155 5,382 ROA Jointly controlled entities 914 1,233 1,262 1,289 1,319 Associated companies Gearing Investment securities Net debt/equity (%) Finance lease receivables Net interest coverage (x) Restricted bank deposits Dividend Coverage 3.77 (3.52) (0.63) Other assets Non-current assets 6,287 6,511 7,475 7,782 8,077 Operational Analysis E 2017E 2018E Bank balances and cash 1, CT8 throughput ('000 TEU) 1,640 1,576 1,576 1,576 1,576 Other current assets PRC port throughput ('000 TEU) 54,927 56,039 59,780 63,131 63,900 Total current assets 1,330 1, Overseas port throughput ('000 TEU) 10,759 11,056 12,282 13,192 13,677 Current borrowings Total throughput ('000 TEU) 67,326 68,671 73,638 77,899 79,152 Other current liabilities Recurrent throughput ('000 TEU) 67,326 68,671 73,638 77,899 79,152 Total Current Liabilities COSCON leasing rate (US$/TEU/day) Net Assets 6,713 7,059 7,334 7,619 8,081 LT leasing rates (US$/TEU/day) Long-term debt 1,578 1,811 2,061 2,311 2,561 ST leasing rates (US$/TEU/day) Other long-term liabilities Florens - utilisation rate (%) Minority interests Florens container purchase price (US$/T 1,898 1,694 1,900 1,950 1,950 Shareholders equity 4,742 4,863 4,875 4,894 5,088 Capital Employed 6,713 7,059 7,334 7,619 8,081 Growth% CT8 throughput 0.0 (3.9) PRC port throughput Cash Flow Statement (US$ mn) E 2016E 2017E 2018E Overseas port throughput Pretax operating profit Total throughput Depreciation and amortisation Recurrent throughput Other non-cash items (209) 311 (787) (282) (320) COSCON leasing rate (3.0) (4.0) (1.0) (1.0) (1.0) Gross Cash Flow (135) LT leasing rates (5.9) (8.1) (5.5) (4.2) (3.5) Capex (198) (1,100) (600) (500) (500) ST leasing rates (18.5) (20.7) Change in working capital 32 (85) (54) (33) - Florens container purchase price (0.9) Profit tax paid (34) (41) (32) (32) (36) Dividend income from associates/jces MW Valuation E 2017E 2018E Minority interest in net income (20) (21) (13) (16) (18) P/E Free Cash Flow 365 (186) (692) (16) 54 P/BV Share issues EV/EBITDA Dividend paid (77) (125) (288) (273) (120) Dividend yield Net borrowings/repayment (258) FCF Yield Net Cash Flow (121) (207) (743) (54) 166 Beginning Cash 1,237 1, Ending Cash 1, E = Morgan Stanley Estimates; NM = Not Meaningful Source: Company Data, Morgan Stanley Research ; Note: Dividend Yield does not include special dividend. 2

3 Risk-Reward Snapshot: COSCO Pacific (1199.HK, HK$9.02, EW, PT HK$9.07) COSCO Pacific April 13, 2016 Risk-Reward View: Fully Valued on Current Price Levels HK$ Price Target HK$9.07 Bull HK$ x 2016e bull case P/E HK$9.02 HK$12.43 (+38%) HK$9.07 (+1%) HK$5.93 (-34%) 0 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Price Target (Apr-17) Historical Stock Performance Current Stock Price WARNINGDONOTEDIT_RRS4RL~1199.HK~ Derived from DCF-based sum-of-the-parts, probability-weighted: bull (10%), base (60%), and bear (30%). Strong volume rebound: 10-15% port traffic growth in e, led by improving demand outlook; tariff hikes of 5% in e; long-term CAGR at 2% for e. Recovery in container leasing segment. Investment Thesis Maintain EW rating given limited upside potential to our price target. Given CPL's conversion into a pure play port operator, we think a re-rating could be driven if it is able to deliver solid earnings growth in the next 2-3 years. We cut our net profit estimates by 9-18% for after 2015 results announcement and the disposal of container leasing with acquisition of CSPD. The stock is trading at a 2016e P/E of 11.5x look fair vs. its long-term historical average (2012-now) at 12.4x. The special DPS of HK$0.8 should provide near-term support to the share price. Key Value Drivers Volume growth Valuation of new investment projects Port tariffs Allocation of the disposal proceeds Base HK$ x 2016e base case P/E Bear HK$ x 2016e bear case P/E Moderate growth outlook: 7.2%, 5.8%, 1.6% traffic growth in 2016e, 2017e and 2018e with stable tariffs. Container leasing segment slowly recovering. Double dip: Zero volume growth in e; no tariff hikes from 2015e onward. Container leasing segment remains sluggish. Key Upside Risks to our price target Recovery in China export and trade demand Recovery in European market Potential increase in tariffs Higher valuation multiples by the market Higher-than-expected volume growth Key Downside Risks to our price target Operating risk at specific terminals (e.g., Guangzhou Nansha, Hong Kong HIT) due to cost pressures or market competition. Double-dip in China s export growth, led by weakness in global trade demand. Exogenous risks from wars or natural disasters. Currency depreciation Overpaying for M&As 3

4 Investment Thesis Earnings Pressures Exist; Maintain EW We cut our PT by 17% to HK$9.07, which provides only limited upside from the current share price so we maintain our EW rating on the stock. We also cut our e net profit by 9%-18%, to reflect the removal of Florens, and additions of CSPD and Kumport terminals, as well as a weaker traffic growth outlook. Although the business restructuring has converted CPL into a pure global port operator, we think the market is still concerned with potential earnings shortfalls due to the trading-in of CSPD assets at high valuation multiples (47.2x 2014 P/E) and overall demand weakness due to sustained global macro headwinds. In our view, it will take time for CPL to demonstrate its real competency as a pure port operator by delivering solid earnings growth for the next 2-3 years. In the nearer term, however, we view the special DPS at HK$0.8 offered by CPL as attractive. The stock is trading at 11.5x 2016e P/E and 0.7x P/BV, compared with historical means at 12.4x and 1.4x, respectively. FY2015 Review FY2015 net profit jumped 30.4% YoY to US$382m, beating MSe of US$291m and consensus of US$304m by 31%/26%, mainly led by a provision write-back of US$79m on the disposal of a 21.8% equity interest in CIMC in Excluding one-off items, recurring net profit was US$299m, up by 1.0% YoY and 3% above MSe of Rmb291m. Due to macro challenges, revenues from terminals / container leasing fell by 5.8% / 11.6% YoY, respectively, driving overall revenues down by 8.3% YoY. Gross profit decreased by 7.3% YoY, mainly led by weak performance in container leasing. Port earnings increased 6% YoY to US$224m, led by a profit turnaround of Xiamen Ocean Gate and stable performance of Piraeus. In particular, the terminals of Yantian, Qingdao Qianwan and Antwerp showed strength that drove up JCEs/associates profit by 7.9% / 2.9% YoY, respectively. COSCO Pacific also announced a final DPS of HK$0.229, bringing the total DPS to HK$ This implies a 40% dividend payout ratio, in-line with FY2014 but slightly lower than MSe of 43%. 4

5 Exhibit 2: CPL: Summary of FY2015 Results COSCO Pacific April 13, 2016 Source: Company Data, E=Morgan Stanley Estimates Exhibit 3: CPL: FY2015 Terminals Results Exhibit 4: CPL: FY2015 Container Leasing Results Source: Company Data, Morgan Stanley Research Source: Company Data, Morgan Stanley Research 5

6 Exhibit 5: CPL: Terminal Throughput Volume and YoY Growth COSCO Pacific April 13, 2016 Source: Company data, Morgan Stanley Research 6

7 Earnings Estimates and Valuation Earnings Estimate Adjustments for ; Introducing 2018e Net Profit We cut our e net profit forecasts by 9% and 18% to US$299m and US$292m respectively, after updating our model for the 2015 results announcement and taking into account the disposal of the container leasing business and acquisition of CSPD. We have also added in the contribution from Kumport SPA. We introduce 2018 net profit at US$314m. Detailed changes are highlighted in Exhibit 8. For container terminals, we assume 7.2%, 5.8% and 1.6% throughput growth in 2016, 2017, and We have also added contribution from Kumport SPA to the share results of associates. Our revised net profit estimates are 6%, 12% and 7% below consensus estimates for e respectively. Cutting PT to HK$9.07 Exhibit 6: CPL: Morgan Stanley Estimates vs. Consensus Year to Dec E 2017E 2018E CPL (1199.HK) MS estimates USD mn 299 e 292 e 314 e Consensus estimates USD mn % variance -6% -12% -7% Source: Thomson Reuters Consensus, Morgan Stanley Research estimates We continue to value CPL using a probability-weighted methodology derived from a DCF-based sum-of-theparts valuation. However, we are changing the weightings for our base-, bear- and bull-case scenarios from 70%, 10% and 20% to 60%, 10% and 30%, respectively. We lower the probability for our bull case to 10% from 20% because we see increasing pressure on macroeconomics with weak trade demand. Similarly, we raise our bear case scenario to 30% from 10% as we believe the company will be significantly affected by a slower global economic recovery as well as stagnant trade activity. Base Case: 60% weighting (previously 70%) Scenario Value: to HK$10.09 from HK$10.89 Our base-case valuation drops in part because we lower our net profit estimates by 9-18% for , with a weaker outlook for container terminals. Moreover, we adjust our SOTP valuation to reflect the disposal of the container leasing business and added the value of CSPD. We also add the value of Kumport SPA in Turkey. In our WACC assumption for CPL s terminal valuation, we have left the variables unchanged at 14.4% cost of equity, 4.9% cost of debt and a consistent target capital structure at 67% equity and 33% debt. As a result, we apply 11.2% as a discount factor. Bull Case: 10% weighting (previously 20%) Scenario Value: to HK$12.43 from HK$13.41 previously Exhibit 7: CPL: Probability-weighted Price Target HK$ SOP valuations Prob. Prob-wt values Bull case % 1.24 Base case % 6.05 Bear case % 1.78 Price target 100% 9.07 Source: Morgan Stanley Research In our bull case scenario, we assume a stronger volume rebound; 10-15% port traffic growth in e led by an improving demand outlook; tariff hikes of 5% in 16-17e, and long-term CAGR at 2% for e. The change in our scenario value is mainly driven by our earnings cut after the disposal of container leasing business and the acquisition of CSPD. 7

8 Bear Case: 30% weighting (previously 10%) Scenario Value: to HK$5.93 from HK$6.40 Our bear-case scenario is based on the risk of a double dip in the global economy; nil volume growth in e, and failure of any tariff hikes from 2016 onward. In our bear case, the magnitude of the decrease in our scenario value is the same, reflecting the same factors. The change in our scenario value is mainly driven by The change in our scenario value is mainly driven by our earnings cut after the disposal of container leasing business and the acquisition of CSPD. Exhibit 8: CPL: DCF Assumption Ports - DCF Valuation Summary Weighted average cost of capital (WACC) Equity beta year risk free rate (%) 5.0 Equity risk prem ium (%) 8.5 Cost of equity (%) 14.4 Marginal cost of long-term debt (%) 6.0 Marginal tax rate (%) 19.0 Post-tax cost of debt (%) 4.9 MVE/(MVD+MVE) (%) 67.0 MVD(MVD+MVE) (%) 33.0 Weighted average cost of capital (%) 11.2 Terminal growth rate (%) 0 COSCO Pacific April 13, 2016 Source: Morgan Stanley Research estimates Exhibit 9: CPL: Forward P/E, Sep-02 to Current Exhibit 10: CPL: Forward P/B, Sep-02 to Current % Mean=12.4x Mean=1.4x 20% Forward P/E Forward P/B % 10% % - - 0% 9/12/02 9/12/03 9/12/04 9/12/05 9/12/06 9/12/07 9/12/08 9/12/09 9/12/10 9/12/11 9/12/12 9/12/13 9/12/14 9/12/15 9/12/02 9/12/03 9/12/04 9/12/05 9/12/06 9/12/07 9/12/08 9/12/09 9/12/10 9/12/11 9/12/12 9/12/13 9/12/14 9/12/15 Forward P/E Mean +1std -1std Forward P/B Mean +1std -1std Recurring ROE Source: Bloomberg, Morgan Stanley Research Source: Bloomberg, Morgan Stanley Research 8

9 Exhibit 11: CPL: New vs. Old Estimates, E COSCO Pacific April 13, 2016 New Estimation Original Estimation New Estimation Original Estimation New Estimation Original Estimation 2016E 2016E 2017E 2017E 2018E 2018E TEU TEU % Chng TEU TEU % Chng TEU TEU % Chng Pearl River Delta 21,826,082 22,230,825-2% 22,721,173 23,129,039-2% 23,379,270 23,379,270 0% COSCO-HIT 1,575,858 1,557,995 1% 1,575,858 1,557,995 1% 1,575,858 1,575,858 0% Yantian Int'l Terminals (Phase 1& II & III) 12,773,971 13,114,389-3% 13,412,670 13,770,108-3% 13,815,050 13,815,050 0% Guangzhou Nansha Phase II 4,621,226 4,834,551-4% 4,621,226 4,834,551-4% 4,621,226 4,621,226 0% Quanzhou Pacific Container Terminal - Fujian 1,307,210 1,266,548 3% 1,385,643 1,342,541 3% 1,468,782 1,468,782 0% Xiamen Yuanhai Container Terminal 1,158,923 1,038,364 12% 1,297,994 1,162,967 12% 1,427,794 1,427,794 0% Jinjiang Pacific Terminal 388, ,979-7% 427, ,876-7% 470, ,561 0% Yantze River Delta 10,037,753 10,527,457-5% 10,722,933 11,260,850-5% 10,722,933 10,722,933 0% Shanghai Pudong Int'l Container Terminals 2,558,283 2,493,725 3% 2,609,449 2,543,600 3% 2,609,449 2,609,449 0% Zhangjiagang Win Hanversk Container Terminals 705, ,034 12% 727, ,905 12% 727, ,087 0% Yangzhou Yuanyang Int'l Port 530, ,472-2% 578, ,114-2% 578, ,045 0% Nanjing Port Longtan Container Terminals 2,897,128 2,937,331-1% 3,157,870 3,201,690-1% 3,157,870 3,157,870 0% Yanshan Phase II na na na na na na na na na Ningbo Beilun Port Phase 4 (Berth 7) 1,274,115 1,606,255-21% 1,350,562 1,702,631-21% 1,350,562 1,350,562 0% Ningbo Beilun Port Phase 5 2,072,000 2,320,640-11% 2,299,920 2,575,910-11% 2,299,920 2,299,920 0% Bohai Rim 27,555,631 28,010,370-2% 29,242,031 29,744,273-2% 29,311,173 29,311,173 0% Qingdao Qianwan Terminal 18,015,690 17,928,365 0% 18,916,475 18,824,784 0% 18,916,475 18,916,475 0% Dalian Port Terminal (Dagaowan Phase II) 2,894,261 3,264,356-11% 3,241,573 3,656,079-11% 3,241,573 3,241,573 0% Yingkou Container Terminal 1,700,550 1,571,287 8% 1,836,594 1,696,990 8% 1,836,594 1,836,594 0% Tianjin Five Continents Int'l Terminal 2,750,149 2,887,052-5% 2,942,660 3,089,146-5% 2,942,660 2,942,660 0% Tianjin Port Euroasia Int'l Terminal 2,194,980 2,359,309-7% 2,304,729 2,477,274-7% 2,373,871 2,373,871 0% Overseas 10,604,351 10,971,132-3% 11,363,548 11,763,883-3% 11,738,286 11,738,286 0% COSCO-PSA Terminal 1,648,434 1,671,690-1% 1,730,856 1,755,275-1% 1,730,856 1,730,856 0% Antwerp Gateway 2,216,837 2,279,793-3% 2,394,184 2,462,177-3% 2,585,718 2,585,718 0% Suez Canal Container Terminal - Port Said, Egypt 3,249,488 3,516,010-8% 3,574,437 3,867,612-8% 3,574,437 3,574,437 0% Piraeus Container Terminal S.A. 3,489,592 3,503,638 0% 3,664,072 3,678,820 0% 3,847,275 3,847,275 0% Total 70,023,818 71,739,784-2% 74,049,686 75,898,045-2% 75,151,662 75,151,662 0% New Estimation Old Estimation New Estimation Old Estimation New Estimation Old Estimation Year to Dec (US$ Mn) 2016E 2016E % Chng 2017E 2017E % Chng 2018E 2018E % Chng Turnover Container leasing % % 0 0 na Income from finance lease and container mgt % % 0 0 na Container handling, transportation and storage % % % Container terminal operations % % % Total % % % Operating expenses % % % Other income % % 3 3 0% Operating profit before finance costs % % % Operating profit margin (%) 18.2% 22.4% -4% 17.9% 22.4% -4% 19.1% 19.1% 0% Less: Finance costs % % % Segment results Container leasing % % 0 0 na Disposal gain 0 0 na 0 0 na 0 0 na Container leasing, net % % 0 0 na Dividend income from unlisted container terminals % % 3 3 0% Container terminal and related facilities % % % Loss from River Tade Terminal 0 0 na 0 0 na 0 0 na Disposal gain 0 0 na 0 0 na 0 0 na Container terminal and related facilities, net % % % Others 0 0 na 0 0 na 0 0 na Operating profit after finance cost % % % Depreciation and amortisation % % % EBITDA (include share of profits from asso. and JCEs) % % % Share of profit from associated companies % % % Shanghai Container Terminal (10%) Shanghai Pudong Int'l Container Terminal (30%) % % % Chong Hing Bank (20%) 0 0 na 0 0 na 0 0 na CIMC (16.23% to 21.8% by end-07, disposed at May 2013) 0 0 na 0 0 na 0 0 na Belgium Antwerp Gateway (20%) 7 8-9% 8 9-9% 9 9 0% Dalian Port Container Terminal (20%) -3 0 nm -3 0 na -2-2 na New terminal projects 0 0 na 0 0 na 0 0 na Suez Canal Terminal (20%) % % 8 8 0% Yantian terminal (15%) % % % Shanghai Yixian Road & Bridge 0 0 na 0 0 na 0 0 na Share of profit from jointly controlled entities % % % COSCO-HIT (50%) % % % Qingdao Qianwan Terminal (20%) % % % COSCO-PSA Terminal (49%) 8 8-6% % 9 9 0% COSCO Logistics (49%) 0 0 na 0 0 na 0 0 na Yangzhou Yuanyang Int'l Ports (55.59%) 0 0 na 0 0 na 0 0 na Yingkou Container Terminals (50%) 1 0 nm 2 1 nm 3 3 nm Qingdao Cosport Terminal (50%) 0 0 na 0 0 na 0 0 na Nanjing Longtan (20%) 3 3-5% 4 4-4% 4 4 0% Guangzhou Nansha Port Phase II (39%) 0 0 na 0 0 na 0 0 na Ningbo Phase 4 (berth 7) (20%) % 9 9 0% 9 9 0% Ningbo Phase 5 (20%) % % 5 5 0% Dalian Automobile Teriminals (30%) 2 2 na 2 2 na 2 2 na Tianjin Euroasia Terminal (30%) % % 0 0 0% Profit before taxation % % % Profit after taxation % % % Net profit % % % Recurrent Net Profit % % % Source: Morgan Stanley Research (E) estimates 9

10 Exhibit 12: CPL: Base-case Scenario Sum-of-the-parts Valuation COSCO Pacific April 13, E 2016E 2016E Net Profit Valuation Valuation Methodology US$m US$m PE (x) Container terminals - HK HK CT8 East - 50% DCF ACT - 40% Cost of investment Container terminals - China and overseas Pearl River Delta Guangzhou Nansha Phase II - 39% DCF Yantian Phase I, II, III and West Port - 14% DCF Quanzhou Pacific Container Terminal % DCF Xiamen Haicang - 70% DCF Jinjiang Pacific Terminal - 80% DCF Taicang Terminal Cost of investment Yangtze River Delta WCT Phase 1-30% DCF Zhangjiagang Terminals - 51% DCF Yangzhou Yuanyang Int'l Port % DCF Nanjing Port Longtan Container Terminals - 20% DCF Ningbo Phase 4 (berth 7) - 20% DCF Ningbo Phase 5-20% DCF Bohai Bay (Dayaowan Phase II) - 20% Dalian Automobile Terminal - 30% Cost of invetment na 15.0 na QQCT - 20% Dalian Port Terminal DCF DCF Yingkou Container Terminals - 50% DCF Tianjin Five Continents -14% (Dividend accounting) DCF Tianjin Port Euroasia Int'l Terminal - 30% DCF Overseas COSCO-PSA - 49% DCF Antwerp Gateway - 20% DCF Suez Canal - 20% DCF Piraeus terminal DCF Kao Ming Terminal - 10% effective Cost of investment Kumport SPA (25.8% effective; 40% of 64.5%) Cost of investment Container terminals - total CSPD - 100% P/E Unallocated interest income/(expense) Unallocated corporate expenses Sub-total Less: Unpaid capex on existing projects after end Total Total number of shares as of Dec Per share (HK$) Source: Morgan Stanley Research (E) Estimates 10

11 Exhibit 13: Global Port Operators Valuation Comps Sheet COSCO Pacific April 13, 2016 Last px Target MS Mkt Cap Mkt Cap Share Price Perf. 52-wk CURR 4/12/16 Price Rating (LC Mn) (USD Mn) 1-mo 3-mo 12-mo High Low Ports China Merchants Holdings (International) Co. Ltd.* HKD E 71,616 9,236 7% 10% -29% Cosco Pacific Ltd.* HKD E 24,458 3,154 8% 21% -12% Xiamen International Port Co Ltd CNY 1.71 NC NC 4, % 5% -56% Tianjin Port Development Holdings Ltd HKD 1.20 NC NC 7, % 4% -43% Dalian Port PDA Co Ltd CNY 6.13 NC NC 26,906 4,159 60% 29% -12% Shanghai International Port Group Co Ltd CNY 5.23 NC NC 121,198 18,733 3% -6% -30% Shenzhen Chiwan Wharf Holdings Ltd CNY NC NC 9,803 1,515 3% 14% -33% Tianjin Port Holdings Co Ltd CNY 9.64 NC NC 16,145 2,495 10% 3% -51% Ningbo Port Co Ltd CNY 6.50 NC NC 83,200 12,860 10% -20% 10% Shenzhen Yan Tian Port Holdings Co Ltd N/A 6.99 NC NC 13,576 2,098 4% -7% -41% Hutchison Port Holdings Trust* USD E 33,097 4,268 1% -2% -28% DP World* USD O 15,778 15,778 5% 3% -19% Hamburger Hafen und Logistik AG* EUR E 931 1,062-1% 2% -34% Santos Brasil Participacoes SA BRL NC NC 1, % 17% 20% Global Ports Investments PLC* USD E % -3% -44% P/E (x) P/B (x) ROE(%) EV/EBITDA (x) Dividend Yield (%) 15 16E 17E 15 16E 17E 15 16E 17E 15 16E 17E 15 16E 17E China Merchants Holdings (International) Co. Ltd.* Cosco Pacific Ltd.* Xiamen International Port Co Ltd NA NA NA Tianjin Port Development Holdings Ltd NA NA NA NA NA NA Shanghai International Port Group Co Ltd Shenzhen Chiwan Wharf Holdings Ltd Tianjin Port Holdings Co Ltd NA NA NA Ningbo Port Co Ltd NA NA NA Shenzhen Yan Tian Port Holdings Co Ltd 31.5 NA NA 2.4 NA NA 7.5 NA NA NA NA NA NA NA NA Chinese Median Hutchison Port Holdings Trust* DP World* Hamburger Hafen und Logistik AG* Santos Brasil Participacoes SA Global Ports Investments PLC* Foreign Median Mixed Median * indicates covered companies Source: E = Morgan Stanley Research estimates. NA = Not available. Source: Thomson Reuters, Morgan Stanley Research. 11

12 Disclosure Section The information and opinions in Morgan Stanley Research were prepared or are disseminated by Morgan Stanley Asia Limited (which accepts the responsibility for its contents) and/or Morgan Stanley Asia (Singapore) Pte. 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13 COVERAGE UNIVERSE INVESTMENT BANKING CLIENTS (IBC) STOCK RATING CATEGORY COUNT % OF TOTAL COUNT % OF TOTAL IBC % OF RATING CATEGORY Overweight/Buy % % 25% Equal-weight/Hold % % 24% Not-Rated/Hold 81 2% 5 1% 6% Underweight/Sell % 95 13% 14% TOTAL 3, Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index. Stock Price, Price Target and Rating History (See Rating Definitions) Important Disclosures for Morgan Stanley Smith Barney LLC Customers 13

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