Asia Pacific Equity Research 27 July 2014

▼ Neutral

Hutchison Port Holdings Trust

Previous: Overweight

Downgrading to Neutral as recovery seems priced in

Price: $0.75

HPHT.SI, HPHT SP Price Target: $0.75

HPHT has risen by 21% since the recent trough in mid-Dec-2013, offering a total return of 27% while beating the Index by 15% during the same period. HPHT was also the sector’s best performing stock YTD, outperforming CMHI and COSCO Pac (-8% and +5%, respectively).  Downgrade to Neutral on uninspiring guidance, despite 1H14 earnings beat: Post the better 1H14 results, guidance was left unchanged, to our disappointment, despite the solid trade recovery staged by Yantian port YTD. We lower our rating to Neutral as the stock has reached our Dec-2014 PT, while near-term catalysts seem muted.  Full-year guidance for volume growth retained at 5-6% Y/Y despite the strong 2Q14 volume recovery. Yantian's throughput rose 8% Y/Y (vs a 2% rise Y/Y in 1Q14), significantly better than Western SZ (excl DCB throughput dropped 8% Y/Y). HK's throughput rose 11% Y/Y (vs a 4% rise Y/Y in 1Q14), partly on the low base effect. Mgmt kept FY14 guidance unchanged, noting the strength of peak season shipments is still in doubt, while liners are cautiously optimistic.  Distribution target stays at HK$0.41 for FY14, while a DPU of HK$0.19 was declared for the interim period, flat Y/Y. This year's distribution should be well supported, in our view, as the cash balance swelled to HK$8B at end-1H14 (vs HK$5.8B at end-2013) on receipt of cash proceeds from the disposal of 60% equity interest in ACT, while capex stays at HK$2B for the full-year.  1H14 core profit 6% ahead of expectations: HPHT’s 1H14 NPAT came in at HK$927MM, up 16% Y/Y. Stripping out one-off net disposal gains (HK$244MM) and FX losses (HK$86MM), core profit achieved 46% of JPMe. On a 2% rise in revenue, operating profit was also flattish in 1H14 after excluding several one-offs incl.: 1) deconsolidation of ACT during 2Q14; 2) net disposal gain from ACT transaction; 3) FX loss in 1H14 (vs FX gain in 1H13).

Hutchison Port Holdings Trust (Reuters: HPHT.SI, Bloomberg: HPHT SP) HK$ in mn, year-end Dec FY12A FY13A FY14E FY15E Total Revenue (HK$ mn) 12,427 12,384 13,316 13,715 EBITDA (HK$ mn) 7,099 6,785 7,977 8,020 Trust EBITDA (HK$ mn) 7,941 8,084 8,563 8,797 EPU to Unitholders (HK$) 0.26 0.19 0.22 0.22 DPU to Unitholders (HK$) 0.51 0.41 0.41 0.42 Dividend Yield 8.9% 7.1% 7.1% 7.3% EV/EBITDA (x) 12.2 13.7 11.6 11.5 P/BV (x) 0.6 0.6 0.6 0.6 Gearing (= D/A) 21.2% 24.9% 24.9% 24.8% Interest coverage (x) 14.29 11.84 8.12 8.18 Operating CF (HK$ mn) 4,411 5,155 5,358 6,300 Investing CF (HK$ mn) (422) (4,294) (1,630) (927) Free Cash Flow (HK$ mn) 4,123 4,974 4,327 5,957

FY16E 14,062 8,277 9,006 0.23 0.43 7.4% 11.1 0.6 24.5% 8.45 6,373 (187) 6,717

Singapore Infrastructure & Industrial AC

Karen Li, CFA

(852) 2800-8589 [email protected] Bloomberg JPMA KLI J.P. Morgan Securities (Asia Pacific) Limited

Nick Zheng (852) 2800 8577 [email protected] J.P. Morgan Securities (Asia Pacific) Limited

Ajay Mirchandani (65) 6882-2419 [email protected] J.P. Morgan Securities Singapore Private Limited Price Performance

0.75 $ 0.70 0.65 0.60 Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

HPHT.SI share price ($) FTSTI (rebased)

Abs Rel

YTD 10.4% 4.6%

1m 3.5% 0.8%

Company Data Shares O/S (mn) Market Cap (HK$ mn) Market Cap ($ mn) Price ($) Date Of Price Free Float(%) 3M - Avg daily vol (mn) 3M - Avg daily val ($ mn) 3M - Avg daily val ($ mn) FTSTI Exchange Rate Price Target End Date Price Target ($)

3m 9.6% 7.1%

12m -2.0% -5.5%

8,709 50,283 6,488 0.75 25 Jul 14 31.3% 13.72 9.94 9.9 3350.17 1.00 31-Dec-14 0.75

Source: Company data, Bloomberg, J.P. Morgan estimates.

See page 9 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com

Asia Pacific Equity Research 27 July 2014

Karen Li, CFA (852) 2800-8589 [email protected]

Key catalyst for the stock price: • Strong recovery in throughput growth for Yantian and Hong Kong • Potential value- and DPU-accretive acquisitions

Key financial metrics Revenues (LC) Revenue growth (%) EBITDA (LC) EBITDA margin (%) Tax rate (%) Net profit (LC) EPS (LC) EPS growth (%) DPS (LC) BVPS (LC) Operating cash flow (LC mn) Free cash flow (LC mn) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions Average tariff growth Attributable container throughput

Upside risks to our view: • Unexpected rebound in global trade • Better-than-expected market share gains against other peer ports in the same region •Value- and DPU-accretive M&As

FY13A 12,384 0% 6,785 55% 12% 1,675 0.19 -25% 0.41 9.67 5,155 4,974 11.8 13.5% 0.09 40% 33% 2.5% FY13A 0% 0%

FY14E 13,316 8% 7,977 60% 18% 1,904 0.22 14% 0.41 9.53 5,358 4,327 8.1 14.3% 0.10 41% 33% 3.0% FY14E 0% 5%

FY15E 13,715 3% 8,020 58% 19% 1,885 0.22 -1% 0.42 9.39 6,300 5,957 8.2 13.7% 0.10 41% 33% 3.0% FY15E 0% 3%

FY16E 14,062 3% 8,277 59% 20% 1,961 0.23 4% 0.43 9.19 6,373 6,717 8.4 13.9% 0.11 42% 32% 3.2% FY16E 0% 2%

Source: Bloomberg, Company and J.P. Morgan estimates.

Sensitivity analysis Sensitivity to 5% chg in average tariff 5% chg in container throughput

Valuation and price target basis

Our Dec-14 based PT of US$0.75 is derived based on DCF valuation with a terminal growth rate of 1% and a discount rate of 8.3%). Our PT implies a target dividend yield of 7.3%/7.4%, and a target EV/EBITDA of 10.6x/10.3x on FY14E/FY15E.

Laden container traffic growth (Yantian vs. Shekou) 20% 15% 10% 5% 0% -5% -10% -15% -20%

Shekou

Yantian

Source: Bloomberg, Company and J.P. Morgan estimates.

EBITDA FY14E 5% 5%

Downside risks to our view: • Unexpected collapse in global trade • Accelerating ongoing factory migration from the captive hinterlands resulting in weaker-than-expected throughput volume •Changes in China's withholding taxes (currently 5%)

FY15E 5% 5%

EPS FY14E FY15E 10% 10% 9% 9%

Source: Bloomberg, Company and J.P. Morgan estimates.

JPMe vs. consensus, change in estimates DPU FY14E JPMe old 0.41 JPMe new 0.41 % chg 0% Consensus 0.41

FY15E 0.40 0.42 5% 0.41

Source: Bloomberg, Company and J.P. Morgan estimates.

Comparative metrics

Hutchinson Port Holding Trust COSCO Pacific Tianjin Port Dalian Port CMHI SIPG

CMP LC 0.745 11.22 1.29 2.3 26.00 4.51

Mkt Cap $Mn 6,490 4,255 1,025 1,893 8,544 16,574

P/E FY14E FY15E NM NM 11.1 10.3 9.7 9.2 10.7 10.0 15.7 14.9 16.3 15.2

Source: Bloomberg, Company and J.P. Morgan estimates. Prices are as of 07/25/2014

2

EV/EBITDA FY14E FY15E 11.2 10.9 13.6 12.8 8.2 8.0 12.7 12.1 22.3 21.0 12.2 11.7

P/BV FY14E NM 0.8 0.7 0.6 1.2 1.9

FY15E NM 0.8 0.6 0.6 1.1 1.8

YTD Stock perf. 10.4 5.5 -3.0 15.2 -8.1 -14.6

Asia Pacific Equity Research 27 July 2014

Karen Li, CFA (852) 2800-8589 [email protected]

Share price performance review HPHT’s share price has risen by 21% since the recent trough in mid-Dec-2013, offering a total return of 27% while beating the Index by 15% during the same period. HPHT was also the sector’s best performing stock YTD, outperforming CMHI and COSCO Pac (-8% and +5% respectively). Figure 1: YTD share price performance for China port sector 2%

HANG SENG CHINA ENT INDX XIAMEN PORT-H

25%

DALIAN PORT PD-H

15%

HUTCHISON PORT-U

10%

COSCO PAC LTD

5%

TIANJIN PORT DEV

-3%

CHINA MERCHANT

-8%

-10%

0%

10%

20%

30%

Source: Bloomberg, J.P. Morgan research.

The outperformance was mainly driven by 1) Yantian port's strong recovery momentum, leveraging on the improved demand in US and EU, the trade to which on a combined basis forms c70% of Yantian port's container throughput handled; 2) the disposal of 60% equity interest in ACT strengthened this year's outlook for DPU payout; 3) some services, previously lost during the industrial actions in 2Q13, have been returning to HK since the beginning of this year, while growth accelerated into 2Q14 on a weaker comparison base. Figure 2: Comparison of container throughput growth between Yantian and Western Shenzhen

000 TEUs

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

15% 10% 5% 0% -5% -10% -15% -20% -25%

Figure 3: Growth rate for HPHT’s port assets in Hong Kong has been accelerating since 4Q13.

Yantian

W.SZ (ex-DCB)

Source: Shenzhen Port of Authority, J.P. Morgan research.

3,300 3,200 3,100 3,000 2,900 2,800 2,700 2,600

11%

15% 10%

3%

4%

0% -7%

5% 0%

-5%

-5% -10%

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 HK container throughput

Y/Y chg% (RHS)

Source: Company data, J.P. Morgan research.

3

Karen Li, CFA (852) 2800-8589 [email protected]

Asia Pacific Equity Research 27 July 2014

1H14 results review Table 1: HPHT—1H14 results review in HK$ MMs

Y/Y chg%

Revenue and other income

1H2013 Actual 5,899

Cost of services Staff costs Depreciation amortization Other operating income

(2,328) (152) (1,402) 252

(2,110) (144) (1,418) 32

(4,441) (297) (2,971) 294

(481)

(469)

(895)

Total operating expenses Operating profit

(4,112) 1,896

(4,110) 1,789

0% 6%

(8,309) 5,006

49% 38%

EBITDA EBITDA margin% Adjusted EBITDA Interest and other finance costs Share of profits from associates & JCEs Profit before tax Tax Profit for the period Profit attributable to non-controlling interests Profit attributable to unitholders of HPH Trust

3,298 55% 3,371 (282) 72 1,687 (288) 1,399 (472) 927

3,207 54% 3,279 (306) 72 1,555 (163) 1,391 (591) 801

3%

7,977 60% 8,147 (1,014) 170 4,162 (749) 3,413 (1,509) 1,904

41%

EPU attributable to unitholders (HK$) DPU attributable to unitholders (HK$)

0.11 0.19

0.09 0.19

Other operating expense & Trust expenses

2%

3% 8% 1% 16%

FY2014 JPMe 13,316

% achieved vs. JPMe 45%

1H2014 Actual 6,008

JPM remarks Top-line was up only 2% despite a 0.5% increase in pricing and 6% volume growth largely driven by the distortion from the deconsolidation of ACT.

A net disposal gain of HK$244MM was included in 1H14 while a HK$5MM exchange gain was included in the 1H13 figure. A total of HK$86MM exchange loss was recorded in 1H14. Operating profit largely remained the same level vs. 1H13 if stripping out the distortion from ACT (both deconsolidation and disposal gain) as well as the exchange gain/loss.

41% ACT has become a JCE since 2Q14 41% 41% 49%

Excluding the one-off net disposal gain from ACT and FX loss, HPHT's 1H14 core NPAT would have achieved 46% of our full-year forecast

0.22 0.41

Source: Company data, J.P. Morgan estimates.

Table 2: HPHT—Quarterly results review in HK$ MMs Revenue and other income Cost of services Staff costs Depreciation amortisation Other operating income Other operating expense & Trust expenses Total operating expenses Operating profit EBITDA EBITDA margin% Adjusted EBITDA Interest and other finance costs Share of profits from associates & JCEs Profit before tax Tax Profit for the period Profit attributable to non-controlling interests Profit attributable to unitholders EPU attributable to unitholders (HK$) DPU attributable to unitholders (HK$) Source: Company data, J.P. Morgan research.

4

2Q14

2Q13

Actual 3,064 (1,211) (77) (692) 6 (216) (2,190) 874 1,566 51% 1,607 (148) 41 767 (130) 637 (269) 368 99 0.19

Actual 3,032 (1,103) (71) (723) 26 (212) (2,083) 949 1,672 55% 1,709 (157) 37 830 (80) 749 (329) 421 0.05 0.19

Y/Y chg% 1%

5% -8% -6% -6% -8% -15% -12%

1Q14

4Q13

3Q13

1Q13

4Q12

3Q12

2Q12

1Q12

Actual 2,945 (1,117) (75) (711) 246 (266) (1,923) 1,022 1,732 59% 1,764 (134) 31 919 (158) 761 (203) 559 0.06

Actual 3,122 (1,184) (71) (715) 19 (222) (2,174) 948 1,664 53% 1,682 (179) 18 788 (143) 644 (310) 335 0.04 0.22

Actual 3,364 (1,200) (73) (720) 31 (208) (2,169) 1,195 1,915 57% 1,946 (157) 31 1,069 (103) 966 (427) 539 0.06

Actual 2,867 (1,007) (73) (696) 6 (257) (2,027) 840 1,535 54% 1,570 (149) 34 725 (83) 642 (262) 380 0.04

Actual 3,148 (1,074) (63) (685) 61 (198) (1,959) 1,189 1,874 60% 1,901 (148) 28 1,069 (89) 980 (349) 631 0.07 0.27

Actual 3,330 (1,164) (69) (694) 9 (223) (2,141) 1,189 1,884 57% 1,930 (150) 47 1,086 (97) 988 (400) 589 0.07

Actual 3,113 (1,065) (67) (686) 12 (221) (2,028) 1,085 1,771 57% 1,817 (149) 45 982 (104) 878 (311) 567 0.07 0.24

Actual 2,836 (1,010) (69) (687) 2 (189) (1,953) 883 1,571 55% 1,612 (152) 42 773 (86) 687 (237) 450 0.05

Karen Li, CFA (852) 2800-8589 [email protected]

Asia Pacific Equity Research 27 July 2014

Key takeaways from the briefing call P3 alliance  Although the formation of the P3 alliance was not approved by the anti-monopoly Bureau of the Ministry of Commerce of China, leading shipping liners continue to deploy mega-vessels to promote economies of scale and boost operational efficiency.  With the state-of-the art infrastructure facilities and natural deep-water channels, mgmt believes that Yantian port has the superior physical assets to handle megavessels.  Mgmt does not expect major changes to HPHT’s business model whether or not any type of new alliances are formed among shipping liners. Hong Kong volume growth  HIT, on a standalone basis, was down 2% in 1Q14 while was now up c4% YTD in 1H14 largely driven by the low base comparison due to the industrial action last year.  As the comparison base into 2H14 has normalized, throughput volume at HPHT's HK ports is somewhat on par with last year since the beginning of July. Therefore, mgmt expects volume growth to return to around +1% from July onwards for HIT, in line with HK’s long-term volume growth of 1~2% projected by mgmt. ASP  Overall ASP in 2H14 was slightly up by 0.5% Y/Y with Hong Kong up a bit more by 1% Y/Y while Yantian down 0.5% Y/Y.  With volume growth returning to Hong Kong since the beginning of this year, almost all of the returned volume is transshipment volume, which led to a negative product mix for HK pressuring ASP in the region. On the other hand, HPHT’s ASP in HK still managed to grow by 1% as the mgmt team has been actively looking ways to increase underlying tariff.  As Hong Kong continues to be in a resource-tight situation, mgmt noted that its ports in HK can be a little bit selective in terms of volume to be handled (volume with higher pricing and margin is of higher priority).  The lower ASP in Yantian is mainly driven by higher transshipment volume growth at the port.  For HK, HPHT will be mainly focus on increasing ASP while for Yantian increasing volume is of higher priority. Capex  Mgmt still retains the full year capex guidance of HK$2B. A total of HK$643MM has been spent in 1H14.  Whether or not HPHT‘s final capex for the full-year will reach HK$2 billion depends upon getting the approval on the Yantian expansion by the government as most of the remaining large capital expenditures for 2H14 will be related to Yantian West port Phase II expansion.

5

Karen Li, CFA (852) 2800-8589 [email protected]

Asia Pacific Equity Research 27 July 2014

Refinancing and interest expenses  HPHT managed to get expansion of the HK$1B short-term debt (previously expected to due for refinancing by end-September) for another year.  At this point of time, mgmt expect static change in the interest expense without any significant increase on the short-term interest portion.  There could be some interest cost saving as the effective interest rate may come in at 2% to 2.25% for this year compared to the 2.25% to 2.5% guided by HPHT‘s mgmt at the beginning of this year. Peak season volume outlook  At the moment most of the shipping liners remain cautiously optimistic about the peak season for this year. Mgmt does not expect to see any significant increase.  Mgmt still needs time to observe the trend for peak season as for the past two years, the peak season has been quite late and not in one go. Operating cost  Full-year guidance for the increase in total operating expense is 6~7% Y/Y although every year HPHT is trying to beat the 6~7% guidance through operating leverage.  A lot of barge volume has been coming back to Hong Kong while handling capacity in HK is tight, shipping liners are increasingly working in a more complicated fashion due to all the alliances formed with each other.

6

Karen Li, CFA (852) 2800-8589 [email protected]

Asia Pacific Equity Research 27 July 2014

Investment Thesis, Valuation and Risks Hutchison Port Holdings Trust (Neutral; Price Target: $0.75) Investment Thesis Near-term catalysts seem muted after HPHT’s share price outperformance YTD as the trade recovery at Yantian port seems to be priced in, while the outlook for this year’s peak season recovery appears to remain benign at this point of time. Post the better 1H14 result, guidance was left unchanged, to our disappointment, despite the solid trade recovery staged by Yantian port YTD. Full-year guidance for volume growth was retained at 5~6% Y/Y despite the strong 2Q14 volume recovery as the strength of peak season shipments is still in doubt, while liners are cautiously optimistic. This year's distribution (guided at HK$41 cents) should be well supported in our view, as the cash balance swelled to HK$8B at end-1H14 (vs HK$5.8B at end-2013) on receipt of cash proceeds from the disposal of 60% equity interest in ACT, while capex stays at HK$2B for full-year. Valuation Our Dec-14 PT of US$0.75 is based on our DCF valuation using a terminal growth of 1% and a discount rate of 8.3%. Our PT implies a target dividend yield of 7.9%/8.1%, and a target EV/EBITDA of 11.0x/10.7x on FY14E/FY15E. Our WACC assumptions are as follows: Risk-free rate: 5.0% Market risk premium: 7.0% Beta: 0.8x Debt / (Debt + Equity): 30% After-tax cost of debt: 2.9% Terminal g: 1%, terminal capex: HK$2B Risks to Rating and Price Target Key downside risks include: 1) Unexpected collapse in global trade; 2) accelerating ongoing factory migration from the captive hinterlands resulting in weaker-thanprojected throughput volume; 3) changes in China’s withholding taxes (currently 5%); 4) Potential policy changes resulting in the loss of free port status for Hong Kong port; and 5) successful implementation of China's free trade zones and abolition of the cabotage rule. Key upside risks include: 1) Better-than-expected volume recovery in peak season; 2) Better-than-expected market share gains against other peer ports in the same region; 3) value- and DPU-accretive M&As.

7

Asia Pacific Equity Research 27 July 2014

Karen Li, CFA (852) 2800-8589 [email protected]

Hutchison Port Holdings Trust: Summary of Financials Income Statement HK$ in millions, year end Dec Revenues % change Y/Y EBITDA of cosolidated ports Adjusted EBITDA % change Y/Y Adj. EBITDA Margin EBITDA of the Trust EBITDA of the Trust Margin Operating Profit % change Y/Y Operating Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported)

FY12 12,427 27.6% 7,099 7,260 20.8% 58.4% 7,941 63.9% 4,347 16.9% 35.0% (508) 3,910

FY13 12,384 (0.3%) 6,785 6,906 (4.9%) 55.8% 8,084 65.3% 3,932 (9.5%) 31.7% (583) 3,411 (12.8% 13.6% ) (376) 9.6% 2,237

FY14E 13,316 7.5% 7,977 8,147 18.0% 61.2% 8,563 64.3% 5,006 27.3% 37.6% (1,004) 4,162

FY15E 13,715 3.0% 8,020 8,199 0.6% 59.8% 8,797 64.1% 4,994 (0.2%) 36.4% (1,003) 4,159

FY16E 14,062 2.5% 8,277 8,463 3.2% 60.2% 9,006 64.0% 5,196 4.1% 37.0% (1,002) 4,368

Cash flow statement HK$ in millions, year end Dec Operating Profit Depr. & amortization Change in working capital Income tax paid Interest and other finance costs paid Others Net cash flow from operations Trust acquisition Capex spending Others Cashflow from investing a Equity raised

22.0% (0.1%)

5.0% Distributable income paid to Unitholders Issuance/(Repayment) of other financial (409) (749) (780) (853) liabilities 12.0% 18.0% 18.8% 19.5% Other financing charges, net 1,675 1,904 1,885 1,961 Cash flow from financing (25.1% ) 13.7% (1.0%) 4.0% a 3,572 3,588 3,696 3,732 Changes in cash 0.19 0.22 0.22 0.23 Ending cash 0.41 0.41 0.42 0.43 Free cash flow Ratio Analysis FY13 FY14E FY15E FY16E HK$ in millions, year end Dec a 5,819 6,251 6,783 7,821 EBITDA margin 3,101 3,463 3,454 3,541 Operating margin 161 162 165 168 Net margin

% change Y/Y Distribution to unitholders EPU to unitholders DPU to unitholders Balance sheet HK$ in millions, year end Dec Assets Cash and cash equivalents Trade & other receivables Inventories

13.5% 4,462 0.26 0.51

Others Current assets AFS Investments Net fixed assets

0 0 0 0 0a 9,324 9,081 9,876 10,402 11,530 Sales growth 820 832 832 832 832 EBITDA growth 72,538 74,566 73,049 71,481 68,862 Operating profit growth

Interest in associates & JCEs Intangible assets & Goodwill Total Assets

FY12 6,169 3,023 132

2,689 2,667 2,667 2,667 2,667 Net profit growth

Interest coverage (x) Net debt/Adj. EBITDA (x) 33 10,799 0 0 0 Net debt/(Net debt + equity) 7,714 6,582 6,315 6,606 6,878 Net debt to equity 220 238 238 238 238 a

Total current liabilities 7,967 17,620 Long-term debt 29,109 22,999 Other LT liabilities 12,268 12,315 Total Liabilities 49,343 52,934 Equity (excluding non-controling interests) 67,156 65,169 BPU to unitholders 9.82 9.67 Source: Company reports and J.P. Morgan estimates.

8

0

FY13 FY14E FY15E FY16E 3,932 5,006 4,994 5,196 2,853 2,971 3,026 3,081 (493) (631) 297 182 (580) (1,149) (1,180) (1,253) (476) (1,014) (1,014) (1,014) (81) 174 178 181 5,155 5,358 6,300 6,373 (3,868) 0 0 0 (694) (1,854) (1,158) (462) 268 224 231 275 (4,294) (1,630) (927) (187) 0

0

0

0

(4,132) (3,997) (3,588) (3,696) (3,732) (33) 4,647 0 0 0 (1,545) (1,861) (1,021) (1,004) (1,498) (5,710) (1,211) (4,609) (4,700) (5,230)

(1,722) (350) (882) 673 956 6,169 5,819 6,251 6,783 7,821 4,123 4,974 4,327 5,957 6,717 FY12 FY13 FY14E FY15E FY16E 58.4% 55.8% 61.2% 59.8% 60.2% 35.0% 31.7% 37.6% 36.4% 37.0% 18.0% 13.5% 14.3% 13.7% 13.9% 27.6% (0.3%) 7.5% 3.0% 20.8% (4.9%) 18.0% 0.6% 16.9% (9.5%) 27.3% (0.2%) (25.1% 13.5% ) 13.7% (1.0%)

2.5% 3.2% 4.1% 4.0%

49,470 50,007 49,673 49,339 49,005 a 134,85 137,16 136,11 134,73 132,90 0 6 0 4 9a

a Liabilities Short-term loans Trade & other payables Other CL

FY12 4,347 2,753 (1,301) (745) (479) (163) 4,411 0 (747) 325 (422)

6,553 33,799 12,715 53,066

6,844 33,799 12,315 52,957

7,116 a 33,799 a 11,915 a 52,829 a

63,493 61,736 59,983 a 9.53 9.39 9.19 a

14.29 316.4 % 21.2% 26.9%

11.84 8.12 8.18 8.45 405.2 338.1 329.5 307.0 % % % % 24.9% 24.9% 24.8% 24.5% 33.2% 33.2% 33.0% 32.4%

Asia Pacific Equity Research 27 July 2014

Karen Li, CFA (852) 2800-8589 [email protected]

Other Companies Discussed in This Report (all prices in this report as of market close on 25 July 2014) COSCO Pacific (1199.HK/HK$11.22/Overweight), China Merchants Holdings Int'l (0144.HK/HK$26.00/Neutral) Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.

Important Disclosures



Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Hutchison Port Holdings Trust, COSCO Pacific.



Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: COSCO Pacific.



Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking COSCO Pacific.



Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from COSCO Pacific. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan– covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected]. Hutchison Port Holdings Trust (HPHT.SI, HPHT SP) Price Chart 1

Price($) 0.5

Date

Rating Share Price ($)

Price Target ($)

25-Apr-11

OW

0.95

1.15

03-Oct-11

OW

0.62

0.80

26-Feb-12 OW

0.80

0.95

04-Oct-12

OW

0.74

1.00

04-Jan-13

OW

0.80

0.95

22-May-13 N

0.82

0.84

21-Oct-13

0.76

0.75

0.62

0.75

N

11-Dec-13 OW 0 Mar 11

Jun 11

Sep 11

Dec 11

Mar 12

Jun 12

Sep 12

Dec 12

Mar 13

Jun 13

Sep 13

Dec 13

Mar 14

Jun 14

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Apr 25, 2011.

9

Asia Pacific Equity Research 27 July 2014

Karen Li, CFA (852) 2800-8589 [email protected]

Date

China Merchants Holdings Int'l (0144.HK, 144 HK) Price Chart

90OW HK$36.6

N HK$26 N HK$15.3N HK$28.9

N HK$32.1

Rating Share Price (HK$)

08-Nov-06 OW

22.45

30.00

13-Dec-06 OW

28.80

35.20

22-Jan-07

OW

29.10

36.60

12-Apr-07

OW

34.90

42.50

29-Apr-08

UW

42.00

28.00

23-Jun-08

UW

31.15

26.00

27.10

26.00

N

28.50

24.00

12-Nov-08 N

15.50

16.50

14-Jan-09

N

13.48

15.30

12-Mar-09 N

13.18

12.60

21-Apr-09

19.90

14.30

11-Aug-09 N

28.95

27.20

11-Sep-09 N

28.45

28.50

02-Nov-09 N

25.35

28.90

02-Mar-10 N

29.15

31.40

10-Aug-10 N

29.25

29.00

10-Nov-10 N

32.10

29.80

15-Feb-11 N

33.85

32.10

30-Aug-11 UW

24.65

20.00

14-Mar-12 UW

26.80

20.20

29-Mar-12 UW

25.75

20.00

06-Feb-13 UW

27.40

21.30

29-Aug-13 UW

23.20

18.50

14-Mar-14 N

26.20

25.00

29-May-14 N

23.20

24.00

11-Aug-08 N OW HK$35.2 72

Price(HK$)

UW HK$26 N HK$16.5 UW HK$14.3 N HK$28.5

N HK$29.8

OW HK$30 OW HK$42.5 UW HK$28 N HK$24 N HK$12.6 N HK$27.2 N HK$31.4 N HK$29 54

N HK$24 03-Sep-08

UW HK$20

UW HK$20 UW HK$20.2 UW HK$21.3 UW HK$18.5 N HK$25

36

18

0 Oct 06

Apr 08

Oct 09

Apr 11

Oct 12

Apr 14

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Nov 08, 2006.

Date

OW HK$24.3

OW HK$15.6 OW HK$15.3 OW HK$20.7

OW HK$10 OW HK$9.3 OW HK$15.5 OW HK$15.6 OW HK$17.5

16.18

23.00

19.34

24.30

22-Mar-07 OW

19.20

23.60

05-Aug-08 OW

12.40

16.60

04-Nov-08 OW

6.61

10.00

12-Mar-09 OW

5.57

8.80

14-Apr-09

OW

8.57

9.30

OW HK$13.3 11-Aug-09

OW

12.98

15.40

01-Sep-09 OW

11.98

15.50

30-Oct-09

OW

10.90

15.60

11-Feb-10 OW

11.48

15.30

31-Mar-10 OW

11.60

15.60

08-Jul-10

9.12

15.30

10-Nov-10 OW

13.36

16.10

15-Feb-11 OW

14.16

17.50

25-Mar-11 OW

14.18

20.70

25-Aug-11 OW

10.28

14.10

14-Mar-12 OW

11.48

14.20

28-Mar-12 N

12.10

14.00

28-Aug-12 OW

10.44

15.00

26-Oct-12

OW

11.42

14.00

22-May-13 OW

10.80

16.00

17-Jun-13

NR

10.50

--

08-Aug-13 OW

10.78

16.00

12-Feb-14 OW

10.14

13.00

28-Apr-14

10.26

13.30

OW HK$16.6 OW HK$8.8 OW HK$15.4 OW HK$15.3 OW HK$16.1 OW HK$14.1 OW HK$14.2 OW HK$15 OW HK$16 OW HK$13

Price(HK$) 22

11

0 Oct 06

Apr 08

Oct 09

Apr 11

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage Jun 17, 2013 - Aug 08, 2013.

10

Oct 12

Price Target (HK$)

OW

33 OW HK$23

Rating Share Price (HK$)

16-Jan-07

OW HK$16

N HK$14 OW HK$14 NR

UW

04-Dec-06 OW

COSCO Pacific (1199.HK, 1199 HK) Price Chart

44 OW HK$23.6

Price Target (HK$)

Apr 14

OW

OW

Karen Li, CFA (852) 2800-8589 [email protected]

Asia Pacific Equity Research 27 July 2014

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com. Coverage Universe: Li, Karen: BTS Group Holdings (BTS.BK), Beijing Capital International Airport (0694.HK), CIMC ENRIC HOLDINGS LTD (3899.HK), COSCO Pacific (1199.HK), CSR Corp Ltd. (1766.HK), Changsha Zoomlion Heavy Industry (1157.HK), China Communications Construction Co. Ltd. (1800.HK), China Merchants Holdings Int'l (0144.HK), China Railway Construction Corporation Limited (1186.HK), China Railway Group Limited (0390.HK), Hollysys Automation Technologies Ltd. (HOLI), Hutchison Port Holdings Trust (HPHT.SI), Jiangsu Expressway - H (0177.HK), Lonking Holdings Ltd (3339.HK), QINHUANGDAO PORT CO LTD-H (3369.HK), SANY Heavy Equipment International Holdings Company (0631.HK), Sinopec Engineering Group (2386.HK), Weichai Power (2338.HK), Zhejiang Expressway (0576.HK), Zhengzhou Coal Mining Machinery Group Company (0564.HK), Zhuzhou CSR Times Electric Co., Ltd. (3898.HK) J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2014

J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*

Overweight (buy) 45% 55% 46% 75%

Neutral (hold) 43% 49% 47% 66%

Underweight (sell) 11% 34% 7% 54%

*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

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11

Karen Li, CFA (852) 2800-8589 [email protected]

Asia Pacific Equity Research 27 July 2014

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Karen Li, CFA (852) 2800-8589 [email protected]

Asia Pacific Equity Research 27 July 2014

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13