aio - broker research macquarrie

Stock: AIO AU
Name: Asciano Group
Price: A$1.72
Market Cap (m): A$5,033
Current valuation (DCF): A$2.19
12mth price target: A$2.20
Recommendation: Outperform
Volatility index: Very High

Event
AIO has released its first quarter results.
Coal +33% NTKM. While this sounds like a great number, it reflects the full benefit of Qld haulage contracts. Volume of tonnes hauled would be more a useful measure, but nonetheless the NTKM growth is consistent with our 31.4% for the full year. Qld haulage volume was impacted by speed restrictions, while for NSW March was impacted by track maintenance and derailment.
Intermodal: Our expectation is 10% NTKM growth for the half. Growth for the quarter was in line with this expectation. The growth is being driven solely from the recovery in the steel business, with minimal gains in intermodal boxes. This possibly reflects substitution to coastal ships and only moderate consumption growth.
Ports were weak. We had AIO lift growth at 5% in the second half compared to 1% in the first quarter. Industry TEU growth for the quarter we believe is still running at ~12%, thus the market share loss has continued. The issue has been the lost contract in November last year, which we believe only had a full impact this quarter. The shutdown at Sydney has also affected volumes, possibly pushing some lifts into April.
Auto Bulk is hard to measure, as the past data has not been the same. It is unclear whether the large drop in bulk ports has had a material impact on profitability. Otherwise, reduced bulk rail is less of a concern as it was driven by grain which is under a take or pay arrangement. Autocare remains in a structural shift, albeit both numbers are as we anticipated.

Impact
As we mentioned on 13 April, we did not anticipate the quarterly volumes to provide a material improvement to earnings expectations. They have not, and if anything there is scope for minor negative changes to ports expectations. Management has not uplifted guidance and reiterated their caution over the rest of the financial year. Nothing stated today will add momentum to the stock.

Action and recommendation
However, AIO is offering value, with coal its growth driver. It performed well and the opportunity to win new contracts in the NML remains. Confirmation of these contracts we believe will be important for investors, and will aid a re-rating towards our target price. Winning of any BHP volume in Queensland would be particularly positive. Timing of these contracts varies, but management is confident that a decision will be made in the coming months. We maintain the Outperform recommendation.