Safe Harbor in a Global Storm
07/08/2009 12:22 pm EST
Dalian Port is poised to profit from China's oil thirst while others bear the brunt of slumping US imports, writes Yiannis G. Mostrous in The Silk Road Investor.
All eyes have been on the Chinese economy this year; the country's growth is viewed as an important cog in efforts to counteract the global slowdown. Key leading indicators have been pointing upward, suggesting that fears of an extreme, negative surprise are unwarranted.
For now, investors are still buying Asian stocks. Non-Asia-based investors purchased $10 billion worth in May, with Taiwan, South Korea, and India the leading destinations for foreign capital.
I’m still bullish for the rest of 2009, although a short-term selloff or consolidation can’t be ruled out. This is why I recommended taking some profits off the table in late May. Asia isn’t as cheap as it was at the beginning of the year, but earnings are improving. This factor alone can take the markets higher.
The strength of the rally has surprised a lot of market participants, as Asian stocks have recaptured their pre-Lehman Brothersmeltdown levels. This equities rally has coincided with similar moves in Asian credit markets.
China's ports should also start to turn around, as container volumes have shown signs of improvement. Container throughput was better than what industry observers were expecting, down only 10.8% in the first four months of the year. The reasons for this were a smaller-than-expected decline in activity at Shenzhen and more resilient growth at the northern ports, which benefited from relatively strong domestic demand.
By the beginning of the fourth quarter the recovery will be well in hand, and 2010 should bring positive growth in container volumes.
Dalian Port (Hong Kong: 2880, OTC: DLPTF) has had a decent year thus far, suffering only a 3.3% decline in container throughput growth. Operating on the southern tip of northeast China, Dalian Port is benefiting from the region's revitalized economy and has become one of the mainland's biggest oil hubs. The Port of Dalian is one of China's four strategic oil reserve bases and the largest oil/liquefied chemicals port in the region. Its oil terminal business (45% of earnings) should improve in the second half of the year; China's demand for oil remains strong.
The company is also relatively protected from the US economic slowdown; the majority of containers traveling to and from the port do not come from the US.
The stock has performed well this year, up 60%—not as much as its larger peers but impressive given its size—and now trades at 10.7 times trailing earnings and 13.7 times expected earnings for 2009. [Shares closed at HK$3.22 in Hong Kong Wednesday, for a 65% gain year-to-date—Editor.] Meanwhile, its growth potential, for this year and next, appears sanguine.