Saturday, August 3, 2013

China COSCO: 85% loss reduction on asset disposals(cs)

China COSCO Holdings
Maintain UNDERPERFORM
Price (30 Jul 13 , HK$) 3.35
TP (prev. TP HK$) 3.00 (3.00)
85% loss reduction on asset disposals

● COSCO has issued an earnings guidance, expecting its 1H13 loss to reduce by 70-85% YoY. This implies a loss of Rmb731 mn- Rmb1.4 bn or a mid-range loss forecast 35% lesser than consensus and 41% lesser than our expectation.

● Selling the logistics unit and CIMC, as well as reducing dry bulk vessel charters are the key reasons of the loss reduction. Excluding the one-off items, we expect the recurring loss to remain substantial at Rmb4.5 bn, only 8% lower than last year.


● Despite a 10% YoY drop in spot rates, dry bulk losses should have narrowed in 1H13 as expensive long-term contracts expire. Liner operations should see profitability weaken in 2Q13, after an average 22% slump in Asia-Europe rates versus 1Q.

● A sharp loss reduction should be positive news. However, liner rates, which will contribute c70% of its revenue this year, appear to be running out of steam as the industry capacity surges. We expect a short peak season and a weakening spot market to retain pressure on the stock. Maintain UNDERPERFORM.

● COSCO has issued an earnings guidance, expecting its 1H13 loss to reduce by 70-85% YoY. This implies a loss of Rmb731 mn- Rmb1.4 bn or a mid-range loss forecast 35% lesser than consensus and 41% lesser than our expectation.

● Selling the logistics unit and CIMC, as well as reducing dry bulk vessel charters are the key reasons of the loss reduction. Excluding the one-off items, we expect the recurring loss to remain substantial at Rmb4.5 bn, only 8% lower than last year.

● Despite a 10% YoY drop in spot rates, dry bulk losses should have narrowed in 1H13 as expensive long-term contracts expire. Liner operations should see profitability weaken in 2Q13, after an average 22% slump in Asia-Europe rates versus 1Q.

● A sharp loss reduction should be positive news. However, liner rates, which will contribute c70% of its revenue this year, appear to be running out of steam as the industry capacity surges. We expect a short peak season and a weakening spot market to retain pressure on the stock. Maintain UNDERPERFORM.

Container shipping rate hikes are running out of steam… again
Without the relatively stable logistics unit and the box manufacturing business, the influence of container shipping on COSCO's group earnings will be even more apparent as we enter 2H13. We expect the liner unit to contribute approximately 70% of group revenues this year, the highest since 2006. Rate performance is unlikely to improve in the coming months, as hefty capacity increases since last week (c18% vessel size increases) by COSCO's competitors will put downward pressure on rates as we head into the peak season. A renewed slump in the Asia-Europe spot market is likely to weigh on COSCO's earnings in the next quarter. We believe that more restructuring, which possibly includes further asset sales, revaluations and sales and lease back deals will be needed to restore COSCO to profitability. The company will report its earnings on 29 August 2013.



Source/Extract/Excerpts/来源/转贴/摘录: CS-Research,
Publish date: 31/07/13

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