The Company released 3Q11 results. In the first nine months of 2011, it recordedoperating revenue of RMB1.282bn (-2% YoY), total profit of RMB610mn (-21% YoY),net profit attributable to the shareholders of RMB387mn (-19% YoY), and EPS ofRMB RMB0.601.

We downgraded earnings forecast and maintain a “Neutral” rating. Based on ourassumptions on the continued traffic diversion in Nansha Port and decelerating exportcontainer growth, we revised down 2011-2013 EPS estimates to RMB0.75/0.76/0.79and reiterate a “Neutral” rating.

3Q11 results came in below estimates, due mainly to faster-than-expected QoQthroughput drop and higher-than-estimated cost growth. The Company achieved profitattributable to the shareholders of RMB387mn, which was 5% lower than ourestimates.

Faster-than-expected throughput drop and higher-than-estimated cost growth mainlydragged down earnings growth. 1) In 3Q11, its financial and administrative expensesgrew 130% and 14% QoQ respectively, and the figures between January andSeptember increased by 261% and 31% respectively on a yearly basis. Financialexpense growth was mainly due to increased lending rate and changes in loanstructure. In 2010, its debt structure mainly consists of foreign currency loans, and thelending rate may be 50% lower than that of the latest RMB-denominated loans, in ourview. 2) Affected by deteriorating fundamentals of overseas economies and NanshaPort’s continued traffic diversion, the Company’s monthly container throughput inSeptember dropped 16.5% QoQ to 477,000 TEU, lower than expectations. The figurebetween January and September declined 5% YoY to 4.385mn TEU.

The domestic and overseas worries will likely continue in the next two years. 1) Due toslack demand in Europe and US, Shenzhen Port saw significant impact from NanshaPort’s traffic diversion in 2011. In the first three quarters of 2011, Guangzhou Portreported 7% and 14% growth in cargo and container throughput, compared to the YoYdecline of 0.2% and 0.4% respectively in Shenzhen. 2) Based on our grassrootsinvestigation, unit container fees levied by Nansha Port is about 40% lower than thatin Shenzhen area. Therefore, the negative effects triggered by traffic diversion willcontinue amid relatively weak demand in Europe and US.