China Shipping Container Lines (02866 HK) released FY12 positive profit alert. CSCL expects FY12 net profit of approximately RMB520 million, turning around from a loss of RMB2,743 million in FY11. We think the core business of CSCL improved with the increase of the freight rate in 2012, especially in Asia-Europe trade. However, due to the subdued international shipping market, core operating profit of CSCL remained in the red in FY12.
Trading opportunity in 2013. We expect to see certain trading opportunities in 2013, given the market practice in 2012 and the supply and demand conditions in the international shipping market. However, the current warming market is fragile in our view. We expect to see quarterly earnings recovery during the year 2013.
Revise up FY12-FY14 earnings estimates. We revise up FY12-FY14 earnings estimates to reflect the slight recovery of the international container shipping market. Revise up FY12-FY14 earnings to RMB520 million, RMB508 million and RMB1,794 million, respectively.
Upgrade to ‘Accumulate’ with TP of HK$2.85. As we expect certain trading opportunities in 2013, we upgrade investment rating to ‘Accumulate’. However, as the share price outperformed the market in the past weeks, we believe it may have advanced certain future increase. We suggest investors to buy on the dips. Our TP represents 51.8x FY13 PER and 14.7x FY14 PER, or 1.0x FY13 P/B ratio. Major risks are 1) the slow recovery of European and U.S. markets; 2) surge of bunker prices; 3) shipping rates plunge due to capacity excess supply.