FY2012 results turn positive
2012 net profit attributable to shareholders was roughly Rmb520mn(or Rmb0.04/sh), compared with net losses of Rmb2.74 bn (o r – Rmb0.235/sh) in 2011. The profit turnaround was basically in line with market expectations.
Trends to watch
Core business narrowed its losses. Through efforts by major liner companies, major West-East routes increased their annual average spot rates in 2012. The Far East-to-Europe route increased fro m US$900/TEU in 2011 to US$1,400/TEU, while the Trans-Pacific route increased from US$1,650/FEU to US$2,300/FEU. CSCL adjusted its freight rate in a timely manner according to sector changes in past years, and we esti mate its recurrent losses narrowed from Rmb2.9bn in 2011 to roughly Rmb1.0bn in 2012. CSCL made recurrent profit amounting to Rmb600mn in 2Q~4Q12 according to our calculations.
Containers disposal to optimize fleet structure and cash flow.CSCL disposed of 295,000 TEU of containers in 4Q12, which brought the company cash flow of ~Rmb3bn and a disposal gain of roughly Rmb925mn.
Mild improvement expected in 2013. Nominal capacity growth may continue to outpace demand growth; therefore, liner companies will continue their efforts to control effective vessel capacity to support a non-loss-making freight rate in 2013. We tend to believe the annualized freight rates of transpacific routes will increase, while Far East-to-Europe routes will maintain flat, therefore margin will slightly improve in 2013 if fuel costs remain flat in 2013.
Earnings revisions
We slightly revise down our 2013e earnings forecast from Rmb0.10/sh to Rmb0.05/sh by revising down CSCL’s average freight rate by ~1%, as CSCL’s recurrent earnings were slightly weaker than the previous forecast in 4Q12. Valuation and recommendation We maintain our recent profit taking call for H-share shipping names. HOLD maintained for CSCL with TP of HK$2.1.