The recent transactions reflect the management’s desire to rescue earnings. Last year, CSCL conducted two container sales during the last two months of the year, gaining RMB925 million. FY12 earnings swung into profitable from the loss in 1-3Q12. This year, 1-3Q13 loss was even larger. The Company announced to sell part of its stake in China Shipping Terminal Dev., and later proposed to sell its stake in Shanghai China Shipping Yangshan Intl’ Container Transportation and its stake in Shanghai Zhengjin. We think gains from these transactions may not be enough to cover the loss in 1-3Q13. The transactions reflect the management’s desire to rescue the earnings. Thus, we think CSCL may dispose of more assets in the year.
Impact of EC’s antitrust proceedings against liners is too early to determine. The EC has opened antitrust proceedings against several liners to investigate whether they engaged in concerted pricing. Back in May 2000, the EU fined shipping lines for an illegal price agreement on the Europe/Far East trade, with total fine of under EUR7 million. However, it is too early to determine the impact on P3 alliance at this stage.
Revise up FY13-FY15 earnings estimates to reflect the last two increases of freight rate on the Asia/Europe trade in the year and a higher contract base for the next year. Our FY13-FY15 earnings estimates are RMB-1,373 million, RMB600 million and RMB3,909 million, respectively.
Maintain ‘Accumulate’ with TP of HK$2.20 as the current valuation is low and potential asset sales may be a short term positive share price catalyst. However, we also believe the outlook for FY14 is still challenging as the asset sales actually reflect the Company’s bearish view on next year.