As expected, FY12 earnings turned positive mainly thanks to one-off gains from sale-and-lease-back of containers
Freight rate to remain volatile given challenging supply-demand dynamics on Asia-Europe route
Maintain HOLD with TP tweaked to HK$2.35
Highlights
No earnings surprise. CSCL recorded a net profit of Rmb524.9mn in FY12 (vs. Rmb2.7bn loss), which is no surprise to the market given the previously released positive profit alert. Stripping off the one-off gain (c.Rmb1.1bn) from disposing boxes, business was still loss making but the losses were notably narrowed. Revenue increased 15.2% y-o-y to Rmb32.6bn, in line with our Rmb32.4bn estimate. Volume/average freight rate increased 8.0%/8.9%y-o-y, respectively.
Our View
Rate on Asia-Europe route remained volatile. Vessel delivery is expected to peak this year, and most of the new capacity consists of large vessels that could only be profitable on the Asia-Europe route. The recent Cyprus crisis adds further uncertainties on the demand side. Thus freight rate could be volatile. The SCFI Asia-Europe spot rate fell 11.7% w-o-w to US$1254/TEU, after a short-lived rate hike in mid-March. Some liners are planning for mo re rate hikes for Asia-Europe (around US$500/TEU on average) in April. We think the outlook for other routes are relatively better, while easing bunker fuel price pressure (we expect a 5-10% decline y-o-y) could help the company to achieve better operating results in FY13.
Recommendation
Maintain HOLD. We keep our FY13/14 earnings forecasts unchanged, but tweaked our TP to HK$2.35 (on 0.8xP/B from 0.9x P/B) to reflect rising uncertainties in Europe. While the shipping market environment has improved in general, we think uncertainties in Eu rope may prevent CSCL from further re-rating; maintain HO LD. We prefer liners with greater exposure to intra-Asia and Asia-US trades.