China Shipping Container Lines (2866, $1.47) 6M Target $1.2 SELL
Kevin Yim –kevin.yim@guoco.com (852) 2218 2861
Event: China Shipping Container Lines reported a 99% drop in 2008 earnings to RMB43mn.
China Shipping Container Lines (CSCL) reported a 99% yoy drop in 2008 earnings to RMB43mn. The company
made a net loss of RMB594mn in 2H08, better than market expectation.
The major surprise came from higher than expected interest income and lower than expected finance costs,
which surged 2.4x yoy to RMB394mn and slump 41% to RMB331mn respectively.
Operation-wise, CSCL’s performance was broadly in line with market expectation, with gross margin decreased
to 2.9% (2007: 12.5%) due mainly to: 1) 33% rise in bunkers costs; 2) 11% drop in revenue as a result of 5%
decrease in shipping volume to 6.9mn TEUs. 2H08 performance was
worse than expected, with shipping
volume and average freight rates down 15% and 10% (as a result of RMB appreciation) respectively while unit
operating costs rose 6% (in RMB terms).
CSCL has solid financial position, sitting with cash of RMB11.7bn and net cash of RMB1.5bn as at end-
December. While cash was 29% lower than that of end-2007 and is expected to decline further, current position
should be adequate for CSCL to weather current industry downcycle.
Management issued bearish outlook for container shipping industry given the global economic recession and
high growth in shipping capacity in the next two years. To tackle this, the company will aim at fuel costs control,
container and routes management, and strengthen long-term cooperation with large customers.
We believe 2009 will be a tough year for CSCL given demand/supply headwinds and loss making seems
inevitable for the company. According to market consensus, CSCL will make a net loss in the range of RMB1-
3bn in 2009.
The counter is currently trading at 0.48x price-to-book. Despite previous trough of 0.2x book value will unlikely
be touched again, we expect share price to cap at 0.5-0.6x price-to-book ratio after recent rally. Reiterate SELL
with six-month target price of $1.2, representing 0.4x price-to-book ratio.
Cheung Kong (1, $71.40) 6M Target $72.0 HOLD
Eric
Kevin Yim –kevin.yim@guoco.com (852) 2218 2861
Event: China Shipping Container Lines reported a 99% drop in 2008 earnings to RMB43mn.
China Shipping Container Lines (CSCL) reported a 99% yoy drop in 2008 earnings to RMB43mn. The company
made a net loss of RMB594mn in 2H08, better than market expectation.
The major surprise came from higher than expected interest income and lower than expected finance costs,
which surged 2.4x yoy to RMB394mn and slump 41% to RMB331mn respectively.
Operation-wise, CSCL’s performance was broadly in line with market expectation, with gross margin decreased
to 2.9% (2007: 12.5%) due mainly to: 1) 33% rise in bunkers costs; 2) 11% drop in revenue as a result of 5%
decrease in shipping volume to 6.9mn TEUs. 2H08 performance was
worse than expected, with shipping
volume and average freight rates down 15% and 10% (as a result of RMB appreciation) respectively while unit
operating costs rose 6% (in RMB terms).
CSCL has solid financial position, sitting with cash of RMB11.7bn and net cash of RMB1.5bn as at end-
December. While cash was 29% lower than that of end-2007 and is expected to decline further, current position
should be adequate for CSCL to weather current industry downcycle.
Management issued bearish outlook for container shipping industry given the global economic recession and
high growth in shipping capacity in the next two years. To tackle this, the company will aim at fuel costs control,
container and routes management, and strengthen long-term cooperation with large customers.
We believe 2009 will be a tough year for CSCL given demand/supply headwinds and loss making seems
inevitable for the company. According to market consensus, CSCL will make a net loss in the range of RMB1-
3bn in 2009.
The counter is currently trading at 0.48x price-to-book. Despite previous trough of 0.2x book value will unlikely
be touched again, we expect share price to cap at 0.5-0.6x price-to-book ratio after recent rally. Reiterate SELL
with six-month target price of $1.2, representing 0.4x price-to-book ratio.
Cheung Kong (1, $71.40) 6M Target $72.0 HOLD
Eric
