Regional Container Lines

Regional Container Lines Plc (RCL)
 

Beat estimate: RCL posted a 4Q11 net loss of Bt392m, a reversal from net profits of Bt644m in 4Q10 and Bt804m in 3Q11. Stripping out a gain of Bt47m on the sale of fixed assets, the reversal of a Bt50m asset impairment, an FX loss of Bt171m and an adjustment for an unrealized loss on derivatives of Bt1m, the 4Q11 core loss would be Bt320m against a core loss of Bt93m for 4Q10 and a core loss of Bt488m for 3Q11. The result was somewhat better than our estimate, due to fatter-than-expected gross profit margin, but missed the consensus expectation. RCL also reported an FY11 net loss of 781m, a reversal from the net profit of Bt464m posted for last year.
Results highlights: The deeper YoY core loss was due to: 1) weak lifting volume (down 12% YoY to 560,912 TEUs), 2) lower freight rates and 3) higher bunker oil costs (up 36% YoY to US$672/tonne). However, the core loss was shallower QoQ, mainly because of cost-cutting. 4Q11 was the first quarter of FY11 in which RCL posted a gross profit margin, albeit slight, rather than a gross loss margin, while the SG&A expenses/sales ratio declined to 8.3% from 9.7% in 4Q10 and 10.1% in 3Q11.
Outlook: 1Q12 core earnings are expected to remain mired in red ink, as we anticipate that lifting volume and freight rates will remain weak, given that the container shipping industry is oversupplied with vessels, the quarter is low season (demand normally peaks in the third-quarter) and the global economic slowdown—demand is sluggish.
What’s changed? We maintain our FY12 net loss forecast at Bt328m.
Recommendation: The stock has already priced in the weak bottom-line outlook, so downside risk appears limited from here—RCL currently trades at a YE12 PBV of only 0.5x (1.4SDs below its long-term average). We, therefore, maintain our HOLD rating. Within Transportation space, we prefer inland operators (BTS and BECL) to shipping stocks, as they currently have better fundamentals and stronger earnings growth prospects.