Action
We believe CIMC’s dry container sales volume and prices are likely to miss expectations in 2013’s peak season, and the annual profit contribution fromcontainer business is likely to decline. We therefore trim our earnings forecastand CIMC-H TP but suggest keeping an eye on event-driven catalysts such as Qianhai development. Maintain ACCUMULATE.
Reasoning
We expect annual earnings from CIMC’s container business to fall20%~30% YoY in 2013.
Disappointing dry container sales in peak season: Dry container sales
volume is expected to have declined 20% YoY in 2Q13, a peak season, ascustomers placed orders in the slack season to reduce cost. Sales price has not exceeded US$2,400/TEU YT D and quoted price is at ~US$2,200/TEU, vs. last year’s high of US$2,700/TEU.
Falling earnings from refrigerated and special container business:
Earnings from refrigerated and special container, which contributed 30%~40% of the container business’s Rmb1.8bn net profit in 2012, are expected to fall, though the decline s hould be smaller than dry container.
Energy & chemical equipment business growing steadily, but stake in Enric reduced. We expect Enric’s net profit to increase 20% in 2013 thanks tothe fast growth of the natural gas industry. However, CIMC has reduced itsstake in Enric to 70% after two placem ents. We expect energy & chemical equipment business’s profit contribution to expand 10% YoY this year. Loss from offshore engineering business to narrow: We expect Raffles’srevenue to rise to >US$1bn in 2013 and its loss to narrow to Rmb200~300mn.
Earnings forecast and valuation
We trim 2013/14/15e EPS by 16.9%, 16.7% and 22.2% to Rmb0.69,Rmb0.95 and Rmb1.15. CIMC-H is trading at 14.4x, 10.3x and 8.6x 2013/14/15e P/E. We cut our 12-month TP on CIMC-H to HK$13.97, base d on sum-of-parts valuation and the P/E of H-share comparables.
Risks
Fluctuations in global marine transportation and container market; uncertaintyin Qianhai development.