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NOL: Bleeding badly.

Thursday, May 10, 2012

On 2 February, I cut losses on NOL as its share price rebounded believing that "shipping industry will face a chronic situation of oversupply and weakening demand this year and possibly the next."

Blow-out 1Q12 Net loss. Neptune Orient Lines (NOL) reported a 1Q2012 Net Loss of USD 253.6 mil, blowing away our already pessimistic FY2012 (read: full year) net loss estimates of USD 160 mil, not to mention consensus estimates of a FY2012 USD 31 mil loss. We maintain our SELL call on NOL and reduce our Target Price further to SGD 0.85 based on 0.8x forward P/B. The bleak outlook in the shipping industry, coupled with global economic uncertainties will likely push a firm recovery for NOL to 2014. (Source: Kim Eng Research)

Neptune Orient Lines (NOL) reported a net loss of US$254m in 1Q12. Logistic revenue grew 7% YoY to US$394m but was unable to offset the 4% fall in Liner revenue to US$2.0b. Group revenue slipped 3% YoY to US$2.4b. Liner revenue shrank despite a volume gain of 4% YoY because average revenue per 40-foot unit (FEU) came in at 7% lower. Management said NOL’s Efficiency Leadership Programme is on track to achieve US$500m of cost savings in 2012. Freight rates have so far in 2Q12 averaged 33% higher QoQ and current rates should see NOL return to profitability in 2Q12. And with NOL expected to turn profitable, we maintain our fair value estimate of S$1.38/share and BUY rating on NOL. (OCBC Research)

Who do you believe?

Related post:
NOL: Cutting losses on a strong rebound.


tt said...

Neither. I only know that my NOL purchase was a bad one.. and i have yet to cut lost.

AK71 said...

Hi tt,

Cutting loss is a difficult thing for many to do. If we are sure a long position has gone bad, we just gotta bite the bullet.

However, in certain instances, people who have very good reasons to think that the weakness is temporary could be rewarded for their tenacity. :)

Musicwhiz said...

I don't believe any of them. I won't touch NOL with a 50-foot pole, even.

AK71 said...

Hi MW,

Not now anyway. Haha.. Its business is cyclical in nature. So, for anyone who is able to catch the next up cycle, it could be very rewarding. :)

Kelvin Tan said...

Is that ex SAF general Ng still CEO of NOL?

You know not to touch it then.

AK71 said...

Hi Kelvin,

You know what they say about a rising tide lifting all boats (pun unintended)? Well, NOL would do well too when the cycle turns up again. ;)

I will stay as an observer in the meantime as the tide recedes and reveals naked swimmers. ;p

Ray said...

NOL seem to have found a floor near $1.03. Any thoughts AK?

I'm quite tempted. Fingers getting itchy but mind telling me to be careful. ha ha.

AK71 said...

Hi Ray,

Well, there is a higher low in price and in the MFI too. The MFI measures demand as it takes in volume and price. So, there is some support as momentum in demand has improved.

However, on the daily chart, there is immediate resistance provided by the 20dMA and upside could be quite limited. If it should break this resistance level, then, we could see $1.20 next.

It's your call, of course. I have decided to be very cautious on shipping counters in view of very weak fundamentals. So, unless TA is a clear and screaming "buy", I am avoiding.

AK71 said...

Singapore container shipping firm Neptune Orient Lines (NOL) said at the weekend it was in talks with France's CMA CGM SA and Denmark's A.P. Moeller-Maersk over a potential sale of the company.

In a statement filed with the Singapore Exchange on Saturday, NOL said the talks were "preliminary" and were in relation to "a potential acquisition" of the Singapore firm.

"NOL has a duty to assess all options to maximize shareholder value and improve its competitiveness," the statement said.


AK71 said...

A deal is unlikely to be struck soon, as the slumping shipping sector damps appetite for aggressive bidding, two of the people said. Temasek Holdings Pte, the Singapore state investment company that owns 67 per cent of Neptune Orient, may not be willing sell its stake at a low price, they said.

Acquiring Neptune Orient would help consolidate CMA CGM's No 3 position in container shipping as it competes with market leaders Maersk and Mediterranean Shipping Co.

Neptune Orient's APL container unit has a 2.7 per cent market share, while CMA CGM controls 8.9 per cent of the market, according to data from industry consultant Alphaliner.

Companies are removing vessels on some trade routes to address overcapacity and help lift rates. Still, ships with a combined capacity of about 2.9 million 20-foot containers are due for delivery in 2015 and 2016, and that could mean another three years of overcapacity and financial pain, according to Drewry Shipping Consultants Ltd.


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