Neptune Orient Lines (NOL) reported revenue growth of 8% YoY to US$2.3b and a net loss of US$118m in 2Q12, from US$57m a year ago. The net loss was a result of non-recurring exceptional losses totalling US$119m, which consist of 1) US$82m of impairment losses on obsolete vessels identified for sale, 2) US$29m of restructuring costs, and 3) US$8m of foreign exchange losses. Encouragingly, NOL’s container shipping business turned marginally profitable with a core EBIT of US$7m. In addition, NOL’s Efficiency Leadership Programme (ELP), targeted to achieve US$500m of cost savings in 2012, achieved US$225m of cost savings in 1H12. With freight rates increased to the current viable levels and NOL’s ELP showing significant cost savings, we maintain our fair value estimate of S$1.38/share and BUY rating on NOL.
One-off exceptional losses caused net loss
In 2Q12, Neptune Orient Lines’ (NOL) revenue grew 8% YoY to US$2.3b while its net loss widened to US$118m from US$57m a year ago. The net loss was a result of non-recurring losses totalling US$119m. Encouragingly, NOL’s container shipping business turned marginally profitable with a core EBIT of US$7m, after bleeding a total of US$692m of operating losses over the previous five quarters.
More on one-off exceptional losses
NOL’s non-recurring exceptional losses in 2Q12 were made up of 1) US$82m of impairment losses on obsolete vessels identified for sale, 2) US$29m of restructuring costs, and 3) US$8m of foreign exchange losses. NOL has earmarked five older and less fuel efficient vessels for sale. As a result, it has to mark the values of these vessels to market prices. The impairment amount of US$82m is the difference between the market prices and book values of these vessels. Meanwhile, the US$29m of restructuring costs were related to layoffs in order to streamline the operations of the group. Management estimates cost savings of US$70m/year, starting from FY13, from this streamlining.
Efficiency leadership programme on track
NOL disclosed that its Efficiency Leadership Programme (ELP), targeted to achieve US$500m of cost savings in 2012, is progressing well. The group achieved US$125m and US$225m of cost savings in 2Q12 and 1H12 respectively. And the two biggest drivers of the cost savings achieved are 1) improved fuel efficiency with fleet renewal, and 2) network optimisation. Management also shared that volume transported in 1H12 grew 4% YoY even though fleet capacity shrank 2% YoY. In addition, fuel consumption fell even more at 7% YoY.
Maintain BUY
Shipping liners’ collective discipline in managing container shipping capacity remains the key to the industry’s profitability. Nevertheless, with freight rates increased to the current viable levels and NOL’s ELP showing significant cost savings, we maintain our fair value estimate of S$1.38/share and BUY rating on NOL.
In 2Q12, Neptune Orient Lines’ (NOL) revenue grew 8% YoY to US$2.3b while its net loss widened to US$118m from US$57m a year ago. The net loss was a result of non-recurring losses totalling US$119m. Encouragingly, NOL’s container shipping business turned marginally profitable with a core EBIT of US$7m, after bleeding a total of US$692m of operating losses over the previous five quarters.
More on one-off exceptional losses
NOL’s non-recurring exceptional losses in 2Q12 were made up of 1) US$82m of impairment losses on obsolete vessels identified for sale, 2) US$29m of restructuring costs, and 3) US$8m of foreign exchange losses. NOL has earmarked five older and less fuel efficient vessels for sale. As a result, it has to mark the values of these vessels to market prices. The impairment amount of US$82m is the difference between the market prices and book values of these vessels. Meanwhile, the US$29m of restructuring costs were related to layoffs in order to streamline the operations of the group. Management estimates cost savings of US$70m/year, starting from FY13, from this streamlining.
Efficiency leadership programme on track
NOL disclosed that its Efficiency Leadership Programme (ELP), targeted to achieve US$500m of cost savings in 2012, is progressing well. The group achieved US$125m and US$225m of cost savings in 2Q12 and 1H12 respectively. And the two biggest drivers of the cost savings achieved are 1) improved fuel efficiency with fleet renewal, and 2) network optimisation. Management also shared that volume transported in 1H12 grew 4% YoY even though fleet capacity shrank 2% YoY. In addition, fuel consumption fell even more at 7% YoY.
Maintain BUY
Shipping liners’ collective discipline in managing container shipping capacity remains the key to the industry’s profitability. Nevertheless, with freight rates increased to the current viable levels and NOL’s ELP showing significant cost savings, we maintain our fair value estimate of S$1.38/share and BUY rating on NOL.
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