What’s new
CSCL held a teleconference with investors on February 26 to discuss recent industry and company developments.
Key points
Slightly lower freight rates after the holiday. Loading rates reached 90~95% for European routes and >100% for US routes before CNY as liner companies cut back on capacity and exporters rushed to deliver orders. The industry is in a traditional small post-CNY off-season. This week CSCL cut freight rates by US$25/TEU for European routes to US$1,200/TEU and by US$100/FEU for US west coast routes to US$2,300/TEU.
There are plans to raise rates but the results have yet to be seen. CSCL plans to raise rates for European routes by US$700/TEU on March 15 and those for US west coast routes by US$400/FEU on April 1. It is difficult to predict the results of implementation at the current level of loading rates, since many shipping services suspended due to CNY have not been restored and factory shipments have not normalized. CSCL is more optimistic about rate hikes on US routes than on European. If spot rates are successfully raised in April, it will be make increasing annual contract rates with big customers on US routes easier. CSCL expects if European route rates are successfully raised on March 15, earnings in 1Q13 could improve from 4Q12.
In 4Q12 European companies such as Maersk recorded better earnings than their Asian counterparts, because of their relative advantages in terms of back haul loading rates, big customers and FOB cargo, cold chain transport, and ship size.
Valuation and recommendation
CSCL-H is trading at 0.8x forward P/B, versus an average of 1.0x for international comparables. We continue to expect a better supply-demand balance in 2014. But in 1H13, we think it is difficult for freight rate increases to beat investor expectations. Maintain HOLD for CSCL-H (TP HK$2.10).
Risk
High season freight rate increases weaker than expected.