* Shares dive as investors sell on good news
* Stock valuation way above domestic rivals
* Merger could enhance earnings
* Huge capex seen ahead (Adds analysts comments and details)
By Alison Leung
HONG KONG, March 17 (Reuters) - Tianjin Port Development Holdings Ltd's 3382.HK shares plunged 13 percent on Tuesday on concerns its $1.4 billion merger deal with Tianjin Port Co Ltd 600717.SS would require significant capital expenditure.
Analysts said the merger was a significant and positive move that could see earnings being enhanced for the two firms, both major operators in China’s third-largest port of Tianjin.
But the stock, which surged 38 percent in two weeks until last Friday, is pricey with valuation at 24 times 2008 earnings against around 11 times that of its bigger domestic rivals, such as COSCO Pacific 1199.HK and China Merchants Holdings 0144.HK, said Jim Wong, an analyst at Nomura.
Tianjin Port, a unit of Tianjin Development Holdings Ltd 0882.HK, said late on Monday it would pay a total of HK$10.96 billion ($1.41 billion) to Tianjin Port (Group) for 56.81 percent of the Shanghai-listed port operator.
It would issue new shares to the seller and possibly to other investors to finance the deal. [ID:nHKG255513]
Tianjin Port (Group), which will become the parent of Tianjin Port Development after the merger, said earlier this month it would invest 12.8 billion yuan ($1.9 billion) this year to build new berths and upgrade facilities in the northern port of China.
The group also intended to inject its 300,000 tonne crude oil terminal into Tianjin Port Co but there was no timetable yet.
“With substantial capex in the wings, we would not advise short-term investors to chase the stock,” Wong said.
Shares in Hong Kong-listed Tianjin Port Development hit a low of HK$1.95, down 13.3 percent in late morning trade, and its Hong Kong-listed parent fell 4.9 percent. Both stock underperformed a 0.7 percent fall in the blue chip Hang Seng Index .HSI.
Shanghai-listed Tianjin Port Co also eased 1.3 percent to 11.8 yuan.
But Credit Suisse upgraded Tianjin Port Development to neutral from underperform on the company’s improved growth outlook from the acquisition.
The consolidation should also help the company gain exposure to China’s energy and resource-related terminal business, such as coal, iron ore and oil products, for which demand is driven mainly by China’s domestic economic growth, it said in a research note on Tuesday.