* Foresee sizeable losses ahead
* Revenue to remain weak in 2Q09
* Surge in oil prices outpacing decline in other costs
* Maintain Underperform with a 2009 PBV target of Bt9.00
Foresee sizeable loss ahead
Though RCL has posted normalized losses for four consecutive quarters, we still expect it to report sizeable losses over the next few quarters, due to depressed revenue and high costs. Given the currently fragile state of the container market, we do not expect the company to report a net profit until 4Q09 at the earliest.
Revenue to remain weak in 2Q09
We expect RCL’s revenue to remain weak in 2Q09, pulled down by the contraction in lifting volume and freight rate. With a high base for its lifting volume last year and the currently weak shipment volume, RCL’s lifting volume is set to show a double-digit decline YoY, similar to 1Q09. Meanwhile, global spot container freight rate has continued to nosedive to historical low, down 20.0% QoQ, and RCL revealed that its 2Q09 freight rate showed a similar drop. While its freight rate for COC (Carrier-Owned-Container) business could stabilize, freight rate for SOC (Shipper-Owned-Container) has continued to plummet QoQ.
Surge in oil prices outpacing decline in other costs
In 2Q09, RCL’s operating costs are expected to remain high. Its other operating costs (excluding bunker oil) have been on the decline after the company returned three chartered vessels (from previously ten chartered vessels) in late March. Nevertheless, this would be outpaced by the recent surge in bunker oil price (accounting for 25.0% of total operating costs). For 3Q09 to date, the average price of bunker oil has picked up 17.0% QoQ, while RCL has not increased its bunker hedging position from just 20.0% of total bunker usage.
Valuation and Recommendation
The sizeable losses that RCL is facing would pressure the share price. Based on target PBV of 0.45x, our target price for the counter is Bt9.00 in 2009. Maintain Underperform.
Analyst: Sirima Dissara 66.2658.8888 Ext. 8849 sirimad@kgi.co.th
By KGI Securities (Thailand) Public Company Limited on May 22, 2009
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