Neptune Orient Lines's (NOL) 1Q13 results disappointed with a larger-than-expected core operating loss. Nonetheless, the figures marked a vast improvement over the same period a year ago. Revenue stayed relatively flat at US$2.37b (-0.3% YoY) and core operating losses narrowed to -US$85.2m from -US$233m a year ago following the success of the cost cutting initiatives implemented last year. Entering 2Q13, NOL could experience further downward pressure on freight rates although we remain hopeful that a combination of positive macro-data, collective industry action and lower bunker fuel costs will push NOL towards a more positive showing by 3Q13. We maintain our view for a modest recovery in FY13 for the liner and keep our BUY rating with an unchanged fair value estimate of S$1.38.
Better 1Q13 than a year ago
Neptune Orient Lines's (NOL) 1Q13 results disappointed us with a larger than expected core operating loss. Nonetheless, the figures marked a vast improvement over the same period a year ago. Revenue stayed relatively flat at US$2.37b (-0.3% YoY) and core operating losses narrowed to -US$85.2m from -US$233m a year ago following the success of the cost cutting initiatives implemented last year. The liner was helped by relative stability in terms of overall freight rates during the quarter, which helped to offset continued weakness in demand on the Asia-Europe trade route. Excluding the one-off gains of US$200m from the sale of its HQ, NOL would have recorded a net loss of US$120.1m (1Q12: -US252.5m).
2Q13 could pose some challenges
According to the Shanghai Containerised Freight Index, freight rates for 2Q13 thus far have declined quite considerably across most routes – with the exception of the Intra-Asia route – and this could hurt the ongoing recovery process for NOL.
But macro-data and low fuel cost encouraging
However, global macro-data such as US retail sales are showing signs of a revival, we are hopeful that the dip in rates is only a temporary blip, and that they recover to similar levels as a year ago. In addition, we remain encouraged by the continued efforts by the main liners to push through rate hikes and manage capacity on trade routes ahead of the contracting season. As for bunker fuel prices, the downward trend is still intact and should prove conducive for NOL in the coming quarters.
Modest recovery in FY13
We maintain our view that NOL will see a turnaround with a modest profit by 3Q13. We keep our BUY rating with an unchanged fair value estimate of S$1.38.
Neptune Orient Lines's (NOL) 1Q13 results disappointed us with a larger than expected core operating loss. Nonetheless, the figures marked a vast improvement over the same period a year ago. Revenue stayed relatively flat at US$2.37b (-0.3% YoY) and core operating losses narrowed to -US$85.2m from -US$233m a year ago following the success of the cost cutting initiatives implemented last year. The liner was helped by relative stability in terms of overall freight rates during the quarter, which helped to offset continued weakness in demand on the Asia-Europe trade route. Excluding the one-off gains of US$200m from the sale of its HQ, NOL would have recorded a net loss of US$120.1m (1Q12: -US252.5m).
2Q13 could pose some challenges
According to the Shanghai Containerised Freight Index, freight rates for 2Q13 thus far have declined quite considerably across most routes – with the exception of the Intra-Asia route – and this could hurt the ongoing recovery process for NOL.
But macro-data and low fuel cost encouraging
However, global macro-data such as US retail sales are showing signs of a revival, we are hopeful that the dip in rates is only a temporary blip, and that they recover to similar levels as a year ago. In addition, we remain encouraged by the continued efforts by the main liners to push through rate hikes and manage capacity on trade routes ahead of the contracting season. As for bunker fuel prices, the downward trend is still intact and should prove conducive for NOL in the coming quarters.
Modest recovery in FY13
We maintain our view that NOL will see a turnaround with a modest profit by 3Q13. We keep our BUY rating with an unchanged fair value estimate of S$1.38.
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