Neptune Orient Lines

Kim Eng on 22 Nov 2012

Seemingly damning statement – but is it that bad? A.P. Moller- Maersk has announced plans to move away from the shipping segment to focus future investments in other businesses such as oil, drilling rigs and ports. While Maersk’s statement is certainly influenced by its poor profitability in shipping, we see this more as a move towards diversifying its capital base than emphasising a write-off of container shipping. Our call on NOL being a prime pick for a container shipping recovery remains unchanged. Reiterate BUY, Target Price SGD1.46.

NOL vs Maersk: Key differences. Maersk Line is primarily focused on the Asia-Europe trade (~40% by volume in FY2011, FY2010), which is currently reeling from the European crisis and correspondingly weak
freight environment - a segment in which NOL only has ~16% of its volumes. Maersk also has its other core businesses anchored in a currently-favoured environment: oil and gas. NOL, however, is not without diversification avenues – it aims to grow its Logistics business to comprise 30% of its revenues from its current level of ~15%.

NOL: still our pick as a recovery proxy. We believe NOL’s strength in the Trans-pacific trade will be a key contributor to a profitable 2013 for the company, providing a springboard to an even better 2014 when the capacity situation abates. For now, the Trans-pacific trade is seeing further signs of strengthening as a USD400 per 40-foot box increase in Asia-USWC freight looks to at least gain some traction from a recovering US housing market and co-operation between liners.

News more sensational than substantial - reiterate BUY. Maersk’s seeming pessimism in the container shipping segment should be seen in perspective against their other business choices primarily anchored in oil and gas. Coupled with their existing containership orderbook representing 17% of its current capacity, this shift away from further investment in container shipping should not be seen as surprising. We reiterate our BUY recommendation on NOL, premised on a demand-led recovery in container trade spearheaded by the US economy.