1H13 loss narrowed by 80%, in line with guidance — CCH reported 1H13 netloss of Rmb990mn, narrowed by 79.7% vs. 1H12, in line with the previous profitalert. Total revenue declined 6.3% YoY to Rmb31.1bn, mainly due to the lowerrevenue contribution from its shipping business. Total costs declined 9.5% YoY,among which bunker costs and operational lease were reduced by 15.9% and21.5%, respectively. Bottom line was helped by ~Rmb3.0bn on the disposal gains ofCosco Logistics and CIMC. Excluding the disposal gains, pre-tax loss narrowed by24.7% to Rmb3.3bn.

Container shipping loss widened — Container reported weaker than expectedresult. Revenue declined by 1.6%, on the back of 8.7% volume growth but 10.6%ASP decline. Operating loss from container segment widened by 51.4% to close toRmb2.0bn. We expect Asia-Europe route to be the weakest spot, where the freightrate had been quite weak and reached a low level of US$514/TEU in late June. For2H13, volume has been strong in July and we saw relatively more sticky freight ratehikes. However, we caution that liners will again be under pressure in the 4Q slackseason as the market remained oversupplied. Nonetheless, we believe losses willbe sequentially narrowed in 2H due to peak season contribution.

Dry bulk loss narrowed — With continued capacity reduction, dry bulk volumeturnover reduced by 11.9% in 1H13. Freight rate remained weak, with spot BDIaveraged at just 842 points in 1H13, further down 10.7% compared to an alreadylow base in 1H12. Dry bulk revenue declined by 22.1% and it now accounts foraround just 21% of CCH’s total revenue. During the period, total bulk shippingcharter cost decreased by another Rmb1.7bn, or 39.3%, with another Rmb669mndecrease of bunker costs. Dry bulk loss was cut to Rmb1.9bn, 44% less than theloss incurred in 1H12.

Further disposal gain of Rmb3.67bn in 2H13 — Together with its interim result,CCH announced disposals of 81% equity interest in two project companies,Qingdao Management and Shanghai Tianhongli. The deal is expected to becompleted before year-end and will provide a gain of ~Rmb3.67bn. Netting theRmb990mn loss in 1H13, CCH now has a buffer of ~Rmb2.68bn in 2H to offsetfurther operational loss. Given the current freight rate trend for both container anddry bulk shipping, we forecast the operating loss in 2H13 should be meaningfullylower than CCH recorded in 1H13. In addition, the series of disposals from CCH thisyear does reflect the company’s determination to turn profitable in 2013.

Maintain Sell — Amid our cautious sector view and CCH’s disappointing operatingresults, we maintain our Sell rating on the company. We maintain our earningsestimation and continue to forecast a small profit in FY13.

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