Loss narrowed YoY but widened QoQ
Net loss of RMB690m in 1Q came below our expectations. While we had anticipated that it will ink red in 1Q, we originally had expected loss to improve QoQ. The company’s core operation made a loss of RMB280m in 4Q12 and the amount has increased to RMB690m in 1Q13.
Weaker-than-expected rates and extremely soft loading rates post Chinese New Year (CNY) were two key factors causing the negative surprise, in our view. Although the industry had a nice uptick in terms of rates and volume before CNY, freight rates and loading factors have been sharply pulling back post CNY. Asia-Europe and Transpacific rates were 10-15% lower end of March vs. pre-CNY levels while post-CNY loading rates for both routes have slashed to 70% vs. 90%+ during mid-Feb.
Rates have collapsed, stock has corrected, we see no reason to turn pessimistic from here Asia-Europe rates have dropped to around US$800/TEU lately, which was more than 40% lower than early this year. At this level of rates and with current loading rates of 80%, we estimate that carriers once again are making loss at cash level. Looking into recent cycles, once rates hit below cash, carriers have always responded very aggressively via supply/pricing discipline. We expect to see similar conditions this time. Along with demand recovery, we expect rates to pick up in coming months. In terms of CSCL, it has traded down to 0.6x P/B. Except GFC and late 2011, it has pretty much hit the lowest point in last a few cycles. With rates resuming upward trend, we expect stock to trend up. Maintain Buy.