3Q earnings in-line
3Q revenue declined 9% YoY, and net earnings declined 141% YoY to -Rmb404mn, although net losses narrowed from 2Q’s -Rmb570mn. 1~3Q13 net losses were Rmb1,670mn, or an EPS of -Rmb0.14. 3Q losses narrowed vs. 2Q as its average freight rate was higher due to carriers’ collaborating in the hike. The 3Q average rate for FE-Europe and Trans-Pacific routes were US$1,200/TEU and US$3,356/TEU, much higher than 2Q’s US$781/TEU and US$3,217/FEU.
Earnings revisions
We revise down our 2013 earnings forecast from -Rmb1.79bn to -Rmb2.07bn, but revise up 2014e earnings from -Rmb2.32bn to Rmb39mn. Our current earnings forecasts do not include the gains (estimated to be Rmb870mn) from the sale of ports assets to a subsidiary of China Shipping Group.
Valuation and recommendation (HOLD; Revise TP to HK$2.1)
CSCL is currently trading at 0.7x 2014e P/B, the same level as its peers, we maintain our HOLD rating, but revise our TP to HK$2.1, implying 0.83x 2014e P/B. Risks may include: freight hike misses expectations; slower economy recovery.
Trends to watch
Freight rate may rebound early November, possibly bringing trading opportunities. Freight rates have dropped a lot over recent months – e.g. FE-Europe routes down from US$1,501/TEU in August to US$670/TEU – and many carriers have announced aggressive rate hike plans for early November (as high as US$1,000/TEU). Given that the recent load factor has climbed to 90% on the basis of higher laid-up ratio, we believe the early-November rate hike could be at least partially implemented, which may bring sentiment towards container shipping names.