Neptune Orient Lines (NOL) surprised the street by turning in a net loss of US$320m in 4Q11, which was even higher than consensus’ full year net loss estimate of US$275m. 4Q11 revenue fell 13% YoY to US$2.4b, while FY11 revenue eased 2% YoY to US$9.2b. Thus far in 1Q12, freight rates have averaged 7% higher but bunker prices have more than kept pace by climbing 8%. Much will now depend on how successful liners are in rate hikes for both Asia-Europe and transpacific trade lanes. Given the possibility of shipping liners successfully raising freight rates, we increase our fair value estimate of NOL to S$1.15/share, based on a 0.9x P/B multiple or half a standard deviation below historical average. However, we reiterate our SELL rating on NOL after a dreadful 4Q11 and an equally challenging outlook.
Magnitude of net loss took street by surprise
Neptune Orient Lines (NOL) turned in a net loss of US$320m in 4Q11, which resulted in a FY11 net loss of US$478m. 4Q11 revenue fell 13% YoY to US$2.4b, while FY11 revenue eased 2% YoY to US$9.2b. The magnitude of NOL’s net loss in 4Q11 is likely to take the street, which was expecting net losses of US$118m and US$275m for 4Q11 and FY11 respectively, by complete surprise. Furthermore, NOL’s net loss in 4Q11 was even higher than any single quarter during the sub-prime crisis back in 2008/09.
1Q12 seems equally challenging
During the month leading to the Chinese New Year, freight rates (SHSPSCFI Index) saw a 15% bounce from the low in mid-Dec 2011, as customers rushed orders before factories in China close for the festive season. The SHSPSCFI has since slid lower for three weeks in a row. Although the SHSPSCFI has averaged 7% higher thus far in 1Q12, bunker prices (BUNKSI38 Index) have more than kept pace by climbing 8%.
Full rate hike is unlikely
Much will now depend on how successful liners are in rate hikes for both Asia-Europe and transpacific trade lanes. At the results briefing, NOL’s management sounded between hopeful and confident of successfully raising freight rates, starting next month. However, overcapacity should mean shipping liners are unlikely to get the full rate hikes they are seeking, short of a mass idling of capacity by the entire shipping community.
Reiterate SELL with new fair value of S1.15
Given the possibility of shipping liners successfully raising freight rates, we increase our fair value estimate of NOL to S$1.15/share, based on a 0.9x P/B multiple or half a standard deviation below historical average. However, we reiterate our SELL rating on NOL after a dreadful 4Q11 and an equally challenging outlook.
Neptune Orient Lines (NOL) turned in a net loss of US$320m in 4Q11, which resulted in a FY11 net loss of US$478m. 4Q11 revenue fell 13% YoY to US$2.4b, while FY11 revenue eased 2% YoY to US$9.2b. The magnitude of NOL’s net loss in 4Q11 is likely to take the street, which was expecting net losses of US$118m and US$275m for 4Q11 and FY11 respectively, by complete surprise. Furthermore, NOL’s net loss in 4Q11 was even higher than any single quarter during the sub-prime crisis back in 2008/09.
1Q12 seems equally challenging
During the month leading to the Chinese New Year, freight rates (SHSPSCFI Index) saw a 15% bounce from the low in mid-Dec 2011, as customers rushed orders before factories in China close for the festive season. The SHSPSCFI has since slid lower for three weeks in a row. Although the SHSPSCFI has averaged 7% higher thus far in 1Q12, bunker prices (BUNKSI38 Index) have more than kept pace by climbing 8%.
Full rate hike is unlikely
Much will now depend on how successful liners are in rate hikes for both Asia-Europe and transpacific trade lanes. At the results briefing, NOL’s management sounded between hopeful and confident of successfully raising freight rates, starting next month. However, overcapacity should mean shipping liners are unlikely to get the full rate hikes they are seeking, short of a mass idling of capacity by the entire shipping community.
Reiterate SELL with new fair value of S1.15
Given the possibility of shipping liners successfully raising freight rates, we increase our fair value estimate of NOL to S$1.15/share, based on a 0.9x P/B multiple or half a standard deviation below historical average. However, we reiterate our SELL rating on NOL after a dreadful 4Q11 and an equally challenging outlook.
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