Neptune Orient Lines Limited (“NOL”) reported a 4.6% YoY decline in 4Q14 revenue to US$2.2b, mainly due to decrease in its Liner revenue on lower freight rates and volume. Cost of sale reduced 7.6% to US$2.0b as its liner segment saw cost savings of US$140m on better operational efficiencies. Consequently, it managed to reduce its net loss from US$137.2m in 4Q13 to US$85.1m in 4Q14. NOL’s FY14 results were slightly below our expectation as its net loss of US$259.8m came in higher than our forecast of US$250.0m net loss. While the impact from lower bunker costs and lower bunker consumption is positive, it is likely to be offset with the depressed yields expected in FY15 on overcapacity reason. Taking into account the lower bunker costs and other factors above, we bump up our FY15 forecast from –8.6 US-cents to 0.4 US-cents and introduce FY16 forecasts. Consequently, we increase our FV from S$0.84 to S$0.92 based on 1.0x FY15F P/B (0.25SD below 5-year mean). Given a 22.3% rally in its share price over the last two months, we downgrade NOL from Hold to SELL.
FY14 recorded net loss of US$259.8m
Neptune Orient Lines Limited (“NOL”) reported a 4.6% YoY decline in 4Q14 revenue to US$2.2b, mainly due to decrease in its Liner revenue on lower freight rates and volume. Cost of sale reduced 7.6% to US$2.0b as its liner segment saw cost savings of US$140m on better operational efficiencies, but was partially offset by higher depreciation and finance expenses as well as foreign exchange losses. Consequently, its net loss reduced from US$137.2m in 4Q13 to US$85.1m in 4Q14. NOL’s FY14 results were slightly below our expectation as its US$259.8m net loss came in higher than our forecast of US$250.0m net loss, but is way above the street’s forecast of US$100.5m net loss. NOL FY14 logistics segment continues to grow as revenue registered 5% YoY growth to US$1.7b while core EBIT remained flat at US$67.0m as it took in ~US$4m M&A and integration-related expenses.
Lower bunker costs not enough to overcome tough year ahead
Management expects overcapacity in the liner industry to persist and the port congestion in U.S. West Coast remains a risk factor. The port congestion added US$15.0m in incremental costs during 4Q14. While we think lower bunker price is good for NOL in the near-term, we remain cautious as competitors may make use of lower bunker price to adjust freight rates in the longer term. We also note that NOL now has a leaner fleet with more fuel-efficient vessels (i.e. lower bunker consumption) with no new deliveries expected in FY15. Hence, while the impact from lower bunker costs and lower bunker consumption is positive, it is likely to be offset with depressed yields expected in FY15 on overcapacity reason. We also expect management’s continuous focus on operational efficiencies and good cargo yield management for key trade routes to improve liner segment’s margins.
Downgrade to SELL
Taking into account the lower bunker costs and other factors above, we bump up our FY15 forecast from –8.6 US-cents to 0.4 US-cents and introduce FY16 forecasts. Consequently, we increase our FV from S$0.84 to S$0.92 based on 1.0x FY15F P/B (0.25SD below 5-year mean). Given a 22.3% rally in its share price over the last two months, we downgrade NOL from Hold to SELL.
Neptune Orient Lines Limited (“NOL”) reported a 4.6% YoY decline in 4Q14 revenue to US$2.2b, mainly due to decrease in its Liner revenue on lower freight rates and volume. Cost of sale reduced 7.6% to US$2.0b as its liner segment saw cost savings of US$140m on better operational efficiencies, but was partially offset by higher depreciation and finance expenses as well as foreign exchange losses. Consequently, its net loss reduced from US$137.2m in 4Q13 to US$85.1m in 4Q14. NOL’s FY14 results were slightly below our expectation as its US$259.8m net loss came in higher than our forecast of US$250.0m net loss, but is way above the street’s forecast of US$100.5m net loss. NOL FY14 logistics segment continues to grow as revenue registered 5% YoY growth to US$1.7b while core EBIT remained flat at US$67.0m as it took in ~US$4m M&A and integration-related expenses.
Lower bunker costs not enough to overcome tough year ahead
Management expects overcapacity in the liner industry to persist and the port congestion in U.S. West Coast remains a risk factor. The port congestion added US$15.0m in incremental costs during 4Q14. While we think lower bunker price is good for NOL in the near-term, we remain cautious as competitors may make use of lower bunker price to adjust freight rates in the longer term. We also note that NOL now has a leaner fleet with more fuel-efficient vessels (i.e. lower bunker consumption) with no new deliveries expected in FY15. Hence, while the impact from lower bunker costs and lower bunker consumption is positive, it is likely to be offset with depressed yields expected in FY15 on overcapacity reason. We also expect management’s continuous focus on operational efficiencies and good cargo yield management for key trade routes to improve liner segment’s margins.
Downgrade to SELL
Taking into account the lower bunker costs and other factors above, we bump up our FY15 forecast from –8.6 US-cents to 0.4 US-cents and introduce FY16 forecasts. Consequently, we increase our FV from S$0.84 to S$0.92 based on 1.0x FY15F P/B (0.25SD below 5-year mean). Given a 22.3% rally in its share price over the last two months, we downgrade NOL from Hold to SELL.
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