NOL has made a great start to the year with an approximate 7% share price appreciation, which adds on to the 5% increase seen in Dec. Aiding the gain was a rise in Chinese PMI for Dec, which showed signs of a revival in the Chinese economy, and relative stability in spot freight rates. Coupled with further rate hikes planned on an industry level, we believe this continuous improvement in investor sentiment is warranted. Maintain BUY on NOL with an unchanged fair value estimate of S$1.38.
Up 7% so far; boost from Chinese PMI
NOL has made a great start to the year with an approximate 7% share price appreciation, which adds on to the 5% increase seen in Dec. Aiding the gain was a rise in Chinese PMI for Dec, which showed signs of a revival in the Chinese economy. We believe this continuous improvement in investor sentiment reinforces our previous assertions that a turnaround is likely in 1HCY13.
Shipping rates remain decent; bunker fuel continues to decline
According to the Shanghai Containerized Freight Index (SCFI), overall rates have held up well as demand grows heading into Chinese Lunar New Year. The China-Europe trade route in particular has experienced an uptick in spot freight rates following an increase in imports into China. This is welcome relief following the persistent weaknesses over the past year. As an added benefit, bunker fuel prices remain low and close to average prices back in 4QCY12, which is 4.5% lower than 3QCY12.
More GRIs announced
A few of the major container shipping lines continue to announce further general rate increases (GRIs) to add on to those implemented previously. For example, Hapag-Lloyd – the sixth largest liner in the world – announced further rate hikes for Asia-South America and Asia-Europe/Mediterranean routes effective 1 Feb.
Managing capacity remains essential
Overhang from newbuildings ordered prior to the great financial crisis continue to haunt the industry with fleet growth likely to continue in CY13. However, capacity management in CY12 had been encouraging with collective efforts by liners to adjust deployed capacity. With the macro-situation still tepid – but improving – managing capacity remains essential.
Maintain BUY
Although there is a risk of some liners reverting to market share grabs should demand increase, we feel that the tacit agreement amongst the major liners to maintain profitability remains intact. Maintain BUY on NOL with an unchanged fair value of S$1.38.
NOL has made a great start to the year with an approximate 7% share price appreciation, which adds on to the 5% increase seen in Dec. Aiding the gain was a rise in Chinese PMI for Dec, which showed signs of a revival in the Chinese economy. We believe this continuous improvement in investor sentiment reinforces our previous assertions that a turnaround is likely in 1HCY13.
Shipping rates remain decent; bunker fuel continues to decline
According to the Shanghai Containerized Freight Index (SCFI), overall rates have held up well as demand grows heading into Chinese Lunar New Year. The China-Europe trade route in particular has experienced an uptick in spot freight rates following an increase in imports into China. This is welcome relief following the persistent weaknesses over the past year. As an added benefit, bunker fuel prices remain low and close to average prices back in 4QCY12, which is 4.5% lower than 3QCY12.
More GRIs announced
A few of the major container shipping lines continue to announce further general rate increases (GRIs) to add on to those implemented previously. For example, Hapag-Lloyd – the sixth largest liner in the world – announced further rate hikes for Asia-South America and Asia-Europe/Mediterranean routes effective 1 Feb.
Managing capacity remains essential
Overhang from newbuildings ordered prior to the great financial crisis continue to haunt the industry with fleet growth likely to continue in CY13. However, capacity management in CY12 had been encouraging with collective efforts by liners to adjust deployed capacity. With the macro-situation still tepid – but improving – managing capacity remains essential.
Maintain BUY
Although there is a risk of some liners reverting to market share grabs should demand increase, we feel that the tacit agreement amongst the major liners to maintain profitability remains intact. Maintain BUY on NOL with an unchanged fair value of S$1.38.
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