China's port operators dented by slow growth

By Alison Leung

HONG KONG, July 11 (Reuters) - Shares in Chinese port
operators should come under pressure over the rest of the year
after a steeper-than-expected fall in the country's June exports
underscored the potential for growth to keep tanking.

Analysts said they would review the situation and some may
downgrade the sector, although others remained bullish on its
long-term prospects with China expected to stay a global trading
power.

Container traffic growth in China's two largest ports,
Shanghai and Shenzhen, slowed sharply in June.

Shenzhen, the world's fourth busiest port -- after Singapore,
Shanghai and Hong Kong -- saw just 3.5 percent growth in traffic
last month from a year ago and a 0.6 percent decline from May,
according to data from the Hong Kong Shippers' Council.

Growth in Shanghai's container throughput slowed about half,
to 10.4 percent for the first six months, from 20 percent in the
whole of 2007. Shenzhen grew 7.2 percent in the first six months,
down from 14 percent achieved last year.

"We've seen the peak, container terminal shipments are now in
a downtrend," said Geoffrey Cheng, an analyst at Daiwa Institute
of Research.

"It's unusual that throughput in June, the peak season for
container shipping, would slow from May.

"June's growth is the smallest in a decade if you strip out
February, which was distorted by the Spring festival and the
impact of snowstorms."

Slowing global demand is evident, with China seeing its
exports growth at 17.6 percent in June, easing from 28.1 percent
in May and well below forecast of 23.4 percent. [ID:nPEK71486]

A POWER CRUNCH

Analysts believe recent corrections in Chinese port stocks
have not yet made them investment bargains, and warn they have
room to fall.

Severe power shortages across China, especially in the
manufacturing hub and export engine of Guangdong, are expected to
add further pressure on exports in the second half of the year.

Analysts say port operators, especially those that focus on
southern China, where growth has slowed more sharply because of
the prevalence of lower value-added goods manufacturing in the
province, are likely to be hard hit.

China Merchants Holdings International (0144.HK), which
generated about 70 precent of its port operating profit from
southern China last year, would face a tougher second half, Cheng
said.

"We expect Chinese export growth momentum to moderate in the
next couple of months on expectations of a further slowdown in
external demand, particularly with softening consumer spending in
the Euro zone," Karen Li, an analyst at JP Morgan, said in a
research note.

But UBS's Edmond Huang believes Chinese ports could be
defensive holdings during an economic downturn, supported by
sustained growth and high margins.

"Our stance is neutral on the sector," he said. "We have a
buy rating on China Merchants on its good management and quality
investment portfolio."
Companies Mkt Cap stock pct change 2008 p/e

$ mln (y-t-d) (times)
China Merchants (0144.HK) 9,024 -38 19
COSCO Pacific (1199.HK) 3,729 -37 11
Dalian Port (2880.HK) 1,687 -24 16
Xiamen Int'l Port (3378.HK) 667 -9 13
Tianjin Port Dev (3382.HK) 751 -45 19
------------------------------------------------------------------ H-share index .HSCE $596 bln -24 14
(Editing by Anne Marie Roantree)