- 2Q14 net loss of USD54m in line.
- Cash generation improved significantly as core EBITDA doubled to USD78m.
- Valuations not compelling given net gearing of 2.16x and FY15E ROE of 7%. TP raised to SGD1.05 (from SGD1) after rollover to 1.0x FY15E P/BV. Maintain HOLD.
2Q14 net loss of USD54m (2Q13: USD35m) met expectations. Cash generation improved significantly as core EBITDA doubled to USD78m (2Q13: SGD39m) on a better cost structure. Overall freight rates were largely unchanged, though cargo volume was down 6% YoY as NOL rejected unprofitable, low-yielding backhaul cargoes. Cost per FEU rose 3% YoY on organisational restructuring, port congestion in Southern California, empty equipment repositioning and one-off costs for the start-up of G6 alliance. We expect further cost-structure improvements as more chartered vessels are returned upon expiry (2H14E: six, 2015E: 14). NOL took delivery of its last vessel on order in 1H14 and currently does not intend to order more. It continues to guide for limited upside for freight rates in view of persistent industry oversupply.
Seasonal freight-rate improvements in 2H14
We expect demand-supply in the sector to improve, which should stabilise freight rates. The recent rally in freight rates (1 Aug: SCFI +12.7% WoW) underscored initial success in planned rate hikes for the peak season. If current rates hold up, we expect NOL to return to profits in 2H14E. While we forecast a turnaround in FY15E, valuations are not particularly compelling, considering its elevated net gearing of 2.16x and FY15E ROE of 7%. Our TP is raised to SGD1.05 from SGD1.00 as we roll over to 1.0x FY15E P/BV. Maintain HOLD.
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