China Shipping Container Line (“CSCL”) is a China-based containershipping company. CSCL's core business is container shipping thataccounts for more than 98% of its revenues. Although its financialresults fluctuated in past years, we expect CSCL’s profitability remainssolid during FY12-FY14 reflecting the slight recovery of theinternational container shipping market. We set our target price atHK$2.70, based on 1.2 x 2012E BVPS. We initiate coverage withOutperform rating.
Large scale fleet structure CSCL's vessels more than 4000TEU amounts to87.6% in 2012. CSCL will add three 10,000 TEU vessels in 2013.Considering partial capacity to exit, CSCL is expected with total capacity of603,000 TEU in 2013.In 2014, CSCL will add another five 10,000 TEUvessels. CSCL will continue to optimize fleet structure in the next two years.We expect the capacity ratio of large vessels will rise relevantly.
CSCL released FY12 positive profit alert CSCL expects FY12 net profitof approximately RMB520 million, turning around from a loss of RMB2,743million in FY11.The Profit was mainly attributable to improvement in theshipping market trends in 2012, increased demand for containertransportation and gradual recovery of freight rates. CSCL disposedcontainers to optimize fleet structure and cash flow. We estimate the loadedcontainer volume of CSCL is up by 9.9%yoy in 2012, and the averagefreight rate is up by 3.1%yoy.
Valuation and rating We expect CSCL’s profitability remains solid duringFY12-FY14. We set our target price at HK$2.70, based on 1.2x 2012EBVPS, implies 12.5% upside potential. Our rating is Outperform.
Investment risks Global container shipping demand growth weak, risingfuel prices and freignt rates decline.