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Regional Container Lines - RCL More losses expected in CY12 Bloomberg │ Reuters RCL.TH │RCL9

Thailand Equities Research 13 March 2012

Report type: Company Update

Company Overview RCL is engaged in container feeder services and international trade services.

• RCL swung to a net loss of Bt780.63mn in CY11 from a year ago profit, down 267.98% y-y as lifting volume and container freight rates dropped and costs edged higher. Stripping out ex-items, full-year losses widened to Bt2,050.75mn, up 343.05% from a loss of Bt462.88mn it posted a year ago.

• Competition is set to rise in 1QCY12 as the container shipping industry appears to have not yet recovered from oversupply, making it more difficult for RCL to pass on oil cost burden to its clients though it has adjusted its service strategy to charter out vessels to lessen its oil cost burden. More losses are expected for RCL in 1QCY12.

• We revise up our CY12 loss outlook for RCL to Bt1,411.87mn to reflect cuts in our lifting volume and container freight rate assumptions. We rate RCL shares a ‘NEUTRAL with a target price of Bt7/share based on a P/B of 0.5x.

What is the news? Bigger losses in CY11 were largely blamed on lower lifting volumes, falling container freight rates and higher costs. How do we view this? Competition is set to rise as the container shipping industry has remained in oversupply, making it more difficult for RCL to pass on oil cost burden to its clients. Investment Actions? We rate RCL shares a ‘NEUTRAL’ with a target price of Bt7/share based on a P/B of 0.5x.

Regional Container Lines

Rating 3.00 Neutral

- Previous Rating 3.00 Neutral

Target Price (Bt) 7.00

- Previous Target Price (Bt) 6.45

Closing Price (Bt) 6.75

Expected Capital Gains (%) 3.7%

Expected Dividend Yield (%) 0.0%

Expected Total Return (%) 3.7%

Raw Beta (Past 2yrs w eekly data) 0.78

Market Cap. (USD mn) 183

Enterprise Value (USD mn) 336

Market Cap. (Bt mn) 5,594

Enterprise Value (Bt mn) 10,430

3M Average Daily T/O (mn) 0.6

52 w eek range 5.5 - 11.3

Closing Price in 52 week range

Major Shareholders (%)

25.2

18.5

7.5

CG Report - 2011

Key Financial SummaryFYE 12/10 12/11 12/12F 12/13F

Revenue (Btmn) 15,218 13,684 13,938 14,933

Net Profit (Btmn) 465 (781) (1,412) (567)

EPS (Bt) 0.56 (0.94) (1.70) (0.68)

Net Profit, adj. (Btmn) (463) (2,051) (1,412) (567)

EPS, adj. (Bt) (0.56) (2.47) (1.70) (0.68)

P/E (X),adj. N/A N/A N/A N/A

BVPS (Bt) 15.92 15.49 14.04 13.36

P/B (X) 0.4 0.4 0.5 0.5

DPS (Bt) 0.00 0.00 0.00 0.00

Div. Yield (%) 0.0 0.0 0.0 0.0

Source: Bloomberg, PSR est.

*All multiples & yields based on current market price

Valuation Method

P/B'12 (0.5x)

1. Ngow-Hok Co., Ltd.

2. Panjamitr Holding Co., Ltd.

3. Mr. Sumeth Tantuw anit

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

0

5

10

15

Volume, mn RCL TB EQUITY SETI rebased

0% 50% 100%

Analyst Siam Tiyanont Analyst Reg#17970 Tel. 662-635-1700 Ext. 483 Email : siam@phillip.co.th

Regional Container Lines - RCL Thailand Equities Research 13 March 2012

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CY11 loss smaller than expected RCL swung to a loss of Bt780.63mn in CY11 from a profit of Bt464.72mn in CY10, down 267.98% y-y but the loss figure came in smaller than our loss forecast of Bt913.22mn thanks to lower-than-expected costs and expenses, bigger-than-expected gains from asset disposal and a reversal of expense provisions in 4QCY11. RCL posted a loss of Bt392.33mn in 4QCY11. For CY11, lifting volume dropped 7.25% y-y to 2.34mn TEUs as a result of rising competition in Asia amid weak economic conditions in the US and Europe and oversupply of vessels. Fiercer competition also dragged container freight rates lower while costs edged up in line with soaring oil prices as bulk surcharges did not fully cover rising costs. Total turnover for the year shrank 10.08% while total costs inched up 0.89% y-y. SG&A expenses declined 1.94% due chiefly to organizational restructuring and staff reduction. In this period, RCL booked a Bt1,386.85mn gain on the disposal of RCL Center in Singapore and containers and a Bt53.63m reversal of impairment losses on assets and derivative instruments, mostly in 4QCY11. Even though interest expenses dropped 12.14%, FX losses widened to Bt170.35mn. Stripping out ex-items, full-year net loss came in at Bt2,050.76mn, up 343.05% from a loss of Bt462.88mn it posted a year ago. More losses expected in 1QCY12 despite strategic change The situation appears to have not improved in 1QCY12 as the long holiday effect during the Chinese New Year Festival caused a slowdown in lifting volume in Jan 2012 and things also remained in the doldrums in Feb. Soaring oil prices also pushed costs higher as bulk surcharges did not fully cover rising costs. The monsoon season in Mar-Apr 2012 and Songkarn Festival in Thailand would also drive down lifting volumes. Even though there is a plan to raise container freight rates, we believe the persistent oversupply will limit room for the hikes. In addition, although RCL has adjusted its service strategy to charter out four vessels to lighten its oil cost burden, we think more losses are expected for RCL in 1QCY12. CY12 loss outlook revised up to Bt1,411.87mn The outlook for container shipping industry remains gloomy in the face of fierce competition fueled by lingering oversupply problems, which affect lifting volumes, container freight rates and bulk surcharges, and the euro-zone’s economic problems. Management has also guided that lifting volume growth this year will be flat to negative. On this basis, we cut our CY12 lifting volume assumption for RCL to 2.34mn TEUs from 2.43mn TEUs and we slash our container freight rate forecast for CY12 to US$196 per TEU from US$199 per TEU. The revisions prompt us to trim our CY12 revenue forecast for RCL to Bt13,937.54mn and revise upward our CY12 loss outlook to Bt1,411.87mn from a previous view of Bt1,167.82mn. We maintain a ‘NEUTRAL’ rating on RCL with a target price of Bt7/share based on a P/B of 0.5x.

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Total Returns Recommendation Rating> +20% Buy 1+5% to +20% Accumulate/Trading Buy 2-5% to +5% Neutral 3-5% to -20% Reduce/Trading Sell 4>-20% Sell 5

We do not base our recommendations entirely on the above quantitative return bands. We

consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation

Ratings History

Phillip Group Rating System

Remarks

12345

Source: Bloomberg, PSR

468

1012141618202224

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Target PriceMarket Price

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Research Department Fundamental: Name Analyst Reg No. Tel Email Sector Sasikorn Charoensuwan 9744 66 2 635 1700#480 sasikorn@phillip.co.th Banking Finance and Securities Rutsada Tweesaengsakulthai 17972 66 2 635 1700#482 rutsada@phillip.co.th ICT Energy Health Care Services Danai Tunyaphisitchai 2375 66 2 635 1700#481 danait@phillip.co.th Construction Materials Property Development Naree Apisawaittakan 17971 66 2 635 1700#484 nareea@phillip.co.th Agro & food Industry Electronics Siam Tiyanont 17970 66 2 635 1700#483 siam@phillip.co.th Transportation Media and Publishing Preeyanun Tripetchchuporn 17973 66 2 635 1700#488 preeyanunt@phillip.co.th Petrochemicals and Chemicals Commerce Tourism Ornmongkol Tantitanatorn 34100 66 2 635 1700#491 ornmongkolt@phillip.co.th Finance and Securities Automotive Construction Materials Strategy: Name Analyst Reg No. Tel Email Teerada Charnyingyong 9501 66 2 635 1700#487 teeradac@phillip.co.th Pinkaew Santimetvirul 37928 66 2 635 1700#491 pinkaews@phillip.co.th Waraporn Trakonthanasoontorn 66 2 635 1700#495 warapornt@phillip.co.th Technical: Name Analyst Reg No. Tel Email Sasima Hattakitnikorn 8328 66 2 635 1700#490 sasimah@phillip.co.th Kanoksak Vutipan 2423 66 2 635 1700#485 Kanoksakv@phillip.co.th Database & Production: Name Tel Email Manunpat Yuenyongwatanakorn 66 2 635 1700#492 manunpaty@phillip.co.th Sutiporn Oupkaew 66 2 635 1700#489 Sutiporno@phillip.co.th Translation: Name Tel Email Chaiyot Ingkhasorarat 66 2 635 1700#493 chaiyoti@phillip.co.th

Regional Container Lines - RCL Thailand Equities Research 13 March 2012

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Bangkok Offices Head Office Srinakarindr Branch Viphavadi Branch

11st Fl., Unit 1102, 14th Fl., Unit 1404 17th Fl., Modernform Tower, 15th Fl., Lao Peng Nguan Tower 1,

and 15th Fl., Vorawat Bldg., 699 Srinakarindr Rd., Suan Luang, 333 Soi Chuaypuang, Viphavadi- 849 Silom Rd. Silom, Suan Luang, Bangkok 10250 Rangsit Rd., Ladyao, Chatuchak, Bangrak, Bangkok 10500 Tel : 0 2722 8344-53 Bangkok 10900 Tel : 0 2635 1700 , 0 2268 0999 Fax : 0 2722 8343 Tel : 0 2618 8400 Fax : 0 2635 1615 Fax : 0 2618 8344 , 0 2618 8381 Yaowarat Branch Bangkapi Branch Bangkapi 2 Branch

19th Fl., Kanchanadhat Bldg., 8th Fl., The Mall Office Tower-Bangkapi 8th Fl., The Mall Office Tower-Bangkapi 308 Yaowarat Rd., Jakawat, 3522 Lad Prao Rd., Klongchan 3522 Lad Prao Rd., Klongchan Sampantawong, Bangkok 10100 Bangkapi, Bangkok 10240 Bangkapi, Bangkok 10240 Tel : 0 2622 7833 , 0 2226 2777 Tel : 0 2363 3263 Tel : 0 2363 3469 Fax : 0 2622 7844 Fax : 0 2363 3275 Fax : 0 2363 3464 Hua Lumphong Branch Rangsit Branch Sindhorn Branch

4th Fl., Tang Hua Pak Bldg., G Fl., Room#PLZ.G.SHP065A 130-132 Sindhorn Tower 3 Building, 320 Rama 4 Rd., Mahaprutharam, Future Park Rangsit 19 Floor, Wireless Rd., Lumpini, Bangrak, Bangkok 10500 94 Paholyothin Rd., Prachathipat, Pathumwan, Bangkok 10330 Tel : 0 2639 1200 Thunyaburi, Pathumthani 12130 Tel : 0 2650 9717 Fax : 0 2639 1340-1 Tel : 0 2958 5040 Fax : 0 2657 9722 Fax : 0 2567 3311 Provincial Offices Khon Kaen Branch Phisanulok Branch Had Yai Branch

4th Fl., Kow Yoo Hah Bldg., 2nd Fl., Thai Sivarat Bldg., 4th Fl., Southland Rubber Bldg., 359/2 Mittapap Rd., Naimuang, 59/15 Baromtrilokanad Rd., Naimuang 55 Ratyindee Rd., Had Yai, Muang , Khon Kaen 40000 Muang, Phisanulok 65000 Had Yai, Songkla 90110 Tel : 0 4332 5044-8 Tel : 0 5524 3646 Tel : 0 7423 4095-99, 0 7423 0537-8 Fax : 0 4322 5687 Fax : 0 5524 5082 Fax : 0 7422 0908 Khon Kaen-Rim Bueng Branch Had Yai-Petkasem Branch Chumporn Investor Center

3rd Fl., Arokaya Bldg., 3rd Fl., Unit 3D, Redar Group Bldg., 25/45 Krom Luang Chumporn Rd., 52 Rop Bueng Rd., Nai Muang, 607 Petkaseam Rd., Had Yai, Tatapao, Muang, Chumporn 86000 Muang , Khon Kaen 40000 Had Yai, Songkla 90110 Tel : 0 7757 0652-3 Tel : 0 4322 6026 Tel : 0 7422 3044 Fax : 0 7757 0441 Fax : 0 4322 6796 Fax : 0 7422 3620 Suratthani Branch Laemchabang Branch 62/9 Donnok Rd., Talad, 83/112, 114 Moo 9, Tungsukla Muang Suratthani, Suratthani 84000 Sriracha, Chonburi 20110 Tel : 077 206 131 Tel : 0 3849 0669 Fax : 077 206 151 Fax : 0 3849 3125

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60 - 69

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90 - 100

The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative disclosured to the public and able to be accessed by a general public investor. The results, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Gavernance Report of Thai Listed Companies. As a result, the survey result may be changed after that data. Phillip Securities (Thailand) of securities company does not confirm nor certify the accuracy of such survey result.

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Overseas Offices Singapore Office: Phillip Securities Pte Ltd Phillip Futures Pte Ltd 250 North Bridge Road, 250 North Bridge Road, #06-00 Raffles City Tower. #07-01 Raffles City Tower. Singapore 179 101 Singapore 179 101 Company Reg. No. 197501035Z Company Reg. No. 198305695G Tel : (65) 65336001 (General) Tel : (65) 65351155 (General) Fax : (65) 65353834 Fax : (65) 65330593 Hong Kong Office: Phillip Securities (HK) Ltd Phillip Commodities (HK) Ltd 11/F United Centre 95 11/F United Centre 95 Queensway Hong Kong Queensway Hong Kong Tel : (852) 22776600 Tel : (852) 22776600 Fax : (852) 28685307 Fax : (852) 28685307 Japan Office: Phillip Futures K.K. The Naruse Securities Co. Ltd. Tosho Bldg., 4-2 Nihonbashi Kabutocho, 6F, 3-8-3 Nihonbashi Hon-cho, Chuo-Ku Tokyo 103-0026 Chuo-ku, Tokyo 103-0023 Japan Tel : (81-3) 5651-2111 Tel : (81-3) 36662101 Fax : (81-3) 3662-5700 Fax : (81-3) 36678806 United Kingdom Office: Indonesia Office: King & Shaxson Ltd. Walker, Crips, Weddle, Beck PLC PT Phillip Securities Indonesia 6th Floor Candlewick House Sophia House, Wisma Standard Chartered Bank, 120 Cannon Street, London 76/80 City Road, Level 23B, Jl. Jend. Sudirman Kav. EC4N 6AS London EC1Y 2EQ 33A Jakarta 10220 Indonesia Tel : (44-20) 7929 5300 Tel : (44-20) 72537502 Tel : (62-21) 57900800 Fax : (44-20) 7283 6385 Fax : (44-20) 72537500 Fax : (62-21) 57900809 Australia Office: Sri Lanka Office: Head Office - Melbourne Sydney Office Asha Phillip Securities Ltd. Intersuisse Ltd Intersuisse Ltd Level 4, MiIlennium House Level 37, 530 Collins Street, Level 7, 5 Elizabeth Street, Sydney, No.46/58, Navam Mawatha, Melbourne, Victory 3000, NSW 2000, Columbo 02, Sri Lanka Australia Australia Tel : (94-1) 12314875 Tel : (613) 96298288 Tel : (612) 92332100 Fax : (94-1) 12314883 Fax : (613) 96298882 Fax : (612) 92332117 The information contained herein is based on sources which Phillip Securities(Thailand) believes reliable. We do not guarantee its accuracy or completeness. Opinions and estimates expressed herein are subject to change without notice. This report is for information only and should not be construed as an offer or solicitation for the purchase or sale of any securities referred to herein. We accept no liability for any loss, direct or indirect, from the use of this document. The directors and/or employees of Phillip Securities and or its associates may have an interest in the securities mentioned herein.

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