Share Price: SGD1.005
Target Price: SGD1.00
Grinding through the worst of times
§ 4Q13 net loss of USD137.2m in line with expectations.
§ Structural overcapacity will continue to depress freight rates in 2014.
§ Expect another loss-making year with little scope for stock re-rating. Maintain HOLD and TP of SGD1.00.
Poor results in line with expectations
NOL reported a poor set of fourth-quarter results to end the year with net loss of USD137.2m (4Q12: USD91.1m).
While negative, the results were well within our expectations. Full-year reported loss narrowed to USD76.3m from USD412.5m in FY12, aided by a oneoff gain of USD200m from the sale of NOL Building at Alexandra Road during the year. Cost savings of USD470m for the year led to an improvement in the company’s underlying performance (core EBIT loss: FY13 = USD167m, FY12 = USD183m). Operating cost per box for the year was reduced by 8% YoY, reflecting the success of NOL’s various savings initiatives. Management, however, remained cautious, citing uncertain global economic prospects, industry oversupply and pressure on freight rates. NOL will continue to pursue cost savings to improve its financial performance in 2014.
No scope for re-rating
While ongoing delivery of larger vessels will improve the cost structure of NOL’s liner business, overcapacity in the industry is still a concern. With freight rates remaining depressed, we anticipate further losses in the year ahead. Given the prospects of a fourth consecutive annual loss and optimistic market expectations for FY14E, we see little scope for stock re-rating. On the bright side, we expect the cash for capex to fall to < USD600m in FY14E as the bulk of cash outlay for the new vessels would have been incurred over the past two years (FY13: USD1.3b, FY12: USD1.0b). Current stock valuation appears fair, in our view. Maintain HOLD with TP of SGD1.00 (1.0x FY14E P/BV in line with historical average in the last market cycle).