NOL: Bleeding badly.

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.

Wilmar: Mr. Market reacts to weaker earnings.

Wilmar's net profit for 1Q 2012 tumbled 34%, year on year. Mr. Market is showing his displeasure in the usual way.

Let us draw some Fibo lines. I am using the high of 15 February at $6.05 and the low of 9 April at $4.76. I am doing this in my office and cannot post the chart here. So, you would have to do it yourself if you want to see the chart.

It is interesting how price gapped down massively at the start of the trading session just now and hit the 138.2% Fibo line and bounced up. At this moment, we have a black hammer that fills the area between the 123.6% Fibo line ($4.46) and the 138.2% Fibo line ($4.26). Could we see price going to $4.11 which is where the 150% Fibo line approximates?

The very high volume up till now is ominous and if this continues throughout the day without price breaking resistance provided by the 123.6% Fibo line, it could herald further weakness to come. Momentum remains negative and the bearish crossover of the MACD with the signal line suggests that things could get worse. The OBV is in decline and it looks like distribution is ongoing.

Fundamentally, Wilmar's management has suggested that 1H 2012 is likely to be challenging. However, the longer term prospects for the company should remain positive as a growing middle class in emerging economies demand better nutrition. In fact, revenue improved 10% year on year which suggests that demand is robust. So, I will want to add to my long position when the dust settles.

Why not buy now? With price action wedged between 123.6% and 138.2% Fibo lines, anyone buying now would want to buy closer to the 138.2% line which is currently acting as support. Would it hold up or would we see the next golden ratio at 150% tested for support?

In any technical analysis book, we would find that a hammer either black or white is considered a bullish reversal signal. However, one stick patterns are not terribly reliable. Also, the trading session has only begun. How would things look at the end of the day?

I still like Wilmar's businesses and its large regional footprint. Its weakening share price presents a chance to accumulate which would allow me to benefit from the company's possibly stronger performance in future. I will keep an eye on things in the meantime.

See: 1Q 2012 Results Briefing.