Actual net profit RMB525m vs. previously guidance of 520m
Results should come as no surprise to the market as the company previously has specifically guided a net profit of RMB520m for 2012. Stripping out gains from one-off items (i.e., RMB500m provision for deferred income tax assets in 3Q and RMB1,094m from box disposal in 4Q), we estimate its core operation has recorded a net loss around RMB1,070m in 2012. Still, this was a big improvement as compared to 2011 (net loss was RMB2,743m). The pick-up of demand (total volume +8.0% YoY) and recovery of rates (average rates +6.7% YoY) were the key drivers for the better results in 2012. On QoQ basis, 4Q net profit was RMB815m. However, excluding box disposal gain, its core operation has turned into a net loss of RMB280m in 4Q (from core net profit of RMB500 in 3Q) as both demand and rates slide during the period.
We remain positive on container shipping, with CSCL being our top pick
In terms of 2013 outlook, mgmt remains relatively cautious. Although the company expects global economy to recover moderately in 2013, mgmt thinks the continued newbuild supplies, fluctuation in oil price, and change of carriers’ mentality remain uncertain factors for the industry. We tend to be more positive than mgmt. China’s export sets to recover strongly as suggested by both macro leading indicators and our bottom-up checks with exporters in China. After two-year loss in a row, we think carriers should have all the motivations to be supply disciplined going forward. The improving supply/demand should help to lift rates higher in coming months. At 0.7x 2013E P/B, we think the stock looks compelling in light of 2013E ROE of 7.2%. Looking into past cycles, if the sector can generate a high single-digit ROE, P/B can trade at 1.2x above. The stock remains our top Buy idea in container shipping space as we like its cheaper valuation and higher leverage to spot market. Target price of HK$3.3, based on 1.1x P/B.