Container Corporation reported 2QFY17 Ebitda 23% below expectation mainly due to revision in annual land license fees to R1.75 billion in FY17 from R890 million in FY16; annual expenses of R200 million of CSR and container repairs that have been accounted in 2Q.
Rise in land license fee has been a negative surprise, which has been tough to pass in this weak volume environment. Factoring this primarily, we have reduced our FY18-19E estimates by 5-7% and FY17E by 15%.
Post discussions with railways Concor’s land license fees has been revised upwards. Management indicated that this should be applicable for 3-6 years which is under negotiation.
However, they were categorical it will clearly not be annual revision. R430 million applicable in 1HFY17 came entirely in 2QFY17. Apart from this annual expenses of CSR and repairs have also been accounted in this quarter.’
Adjusted for quarterly land licence fees, margins would have been higher at 18.2% v/s reported 16.6% but still lower than expectations of 20.1%. ‘
Between land license fees, higher empty running costs and other expenses we have reduced our FY17E-19E margin assumptions by 6-135 bps. Impact is muted on FY18E-19E given volume ramp-up from gradual DFC commissioning. Given the DFC driver is intact, and despite six-nine months looking difficult, we believe it is a good time to ‘buy’ this stock.