2Q loss still substantial, but narrowed QoQ
1H13 net loss was RMB1,258m, largely remained unchanged YoY (net loss of RMB1,281m in 1H12). Total volume edged down 1.6% YoY as growth from Asia-Europe (+6.3% YoY) and intra-Asia (+14.6% YoY) routes was offset by drop in domestic routes (-11.8% YoY). In order to support the domestic freight rates, the company has reduced its operating capacity in this market. Rates for domestic routes rose (+8.7% YoY) while rates for Asia-Europe (-11.8% YoY) and intra-Asia (-10.4% YoY) route both dropped. On QoQ basis, 2Q net loss narrowed to RMB569m from RMB689m in 1Q. While operating loss largely stayed unchanged QoQ, the subsidies from government in 2Q has helped to offset the rising finance cost. The results were in line with our expectations.
Since CSCL’s 2Q earnings pattern was similar to other Asian lines which had already reported, we think the results sh ould not come as a surprise to the market as well.
Sharp rates rebound to drive “V” shaped earnings recovery in 3Q
We noticed that Maersk reported solid earnings in 2Q despite falling spot rates during the period, which contradicted the performance of most Asian lines. While better cost control was one explanation, Maersk’s higher proportion of contracted cargo than Asian lines could be another reason.
Nevertheless, as
spot rates sharply rebounded in 3Q (current Asia-Europe rates stand at US$1,248/TEU vs. merely US$514/TEU end of June), Asian lines, on the back of higher spot exposure, should see stronger rebound in earnings in 3Q. CSCL is the mostly leveraged player to the spot market among Asian carriers. The stock is currently trading at 0.65x 2013E P/B, which looks attractive in light of strong earnings recovery ahead. Maintain Buy.