Neptune Orient Lines -
Two steps forward, one step back
NOL's 9M13 core net loss of US$168m accounted for 51% of our FY13 loss forecast, but we consider this to be in line as the 4Q13 loss should widen sequentially on a dramatic fall in spot rates.
We tweak FY13 core EPS forecasts up slightly on housekeeping matters, but reduce FY14-15 on lower volume assumptions. We upgrade to Neutral from an Underperform as the share price has taken a lot of the risks into account. Our target price is raised as we roll over to end-2014, still based on 1.1x P/BV, the mid-point of its trading range since 2012.
Highlights of 3Q13
NOL performed reasonably well despite 3Q13 Asia-Europe (AE) and transpacific (TP) spot rates falling 20% yoy. NOL's 3Q13 rates fell 8.8%, but the impact on the bottomline was blunted by 5% lower unit costs, with cost savings of circa US$500m for the full year, on top of the US$500m already saved in 2012. Hence, the 3Q13 core net loss of US$9m was much better than 3Q11's US$84m loss, despite lower volumes and rates in 3Q13. But against 3Q12's core net profit of US$41m, last quarter's performance does not look as good, though it should be kept in mind that 2012 was a year of "good" industry behaviour, which sadly descended into an all-out price war this year.
NOL expanded its nominal teu ship capacity by 10% between end-2012 and end-3Q13, but volumes carried shrank 3% yoy for 9M13 (AE volumes shrank 12%, TP fell 1%). Headhaul slot utilisation fell 3% pts yoy for 9M13, with AE and TP down 5% pts each. This suggests that NOL lost market share in the AE trade as its volumes fell by more than the reduction in its sailings, while it also lost market share in the TP trade despite increasing sailings. The global AE trade grew 1% yoy, while the TP trade grew 3.7% yoy for 8M13.
What must be done?
The G6 alliance's biggest ships on order are for 14k teus (ordered by NOL), against 16k/18k ships ordered by the P3 alliance and by CSCL/UASC. The G6 will need to step up its game to compete and to avoid losing further market share in future years to lower slot cost competitors.
Publish date: 31/10/13