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Not so fast: Temasek might refuse to sell NOL after all, analysts warn

It doesn’t want to sell NOL too cheaply.

Investors should be cautious when it comes to snapping up shares of Neptune Orient Lines (NOL), as there is a large possibility that a takeover deal will not materialise for the loss-making container shipping company.

After months of speculation, NOL confirmed on November 7 that it is in talks regarding a potential takeover with France’s CMA CGM, the world’s third-largest container shipping company, and Danish shipping conglomerate Maersk.

However, analysts caution that Singapore’s investment company Temasek might be unwilling to relinquish its 66.97% stake in NOL due to the company’s current cheap valuation.

In our view, we believe Temasek may be unwilling to sell its stake given the current low valuations in the industry,” said OCBC analyst Eugene Chua.

For instance, Chua highlighted that German container shipping company Hapag-Lloyd went public on November 6 with an extremely low price-to-book ratio of 0.5x.

Similarly, NOL’s price-to-book ratio currently hovers at 0.76x, significantly below its 13-year average of 1.05x.

“Taking into account its past dividends and return of capital amount received, there may still be a possibility that Temasek is only willing to sell at a valuation of at least 0.8x 3Q15 P/B, or around $1.10,” Chua added. 

Meanwhile, CIMB analyst Raymond Yap noted that NOL is an attractive acquisition for both CMA CGM and Maersk, as the Europe-based carriers have low exposure to transpacific trade.

Yap added that NOL is currently trading close to its trough valuation, which means that Temasek has good reason to spurn low offers.

“While Temasek is under no pressure to sell cheap, neither will there be too much resistance to sell an underperforming asset which is a recurring blemish on its report card. Any deal could not possibly be below NOL’s book value of S$1.35/share, but we think anything less than S$1.50 would be rejected, based on our sources,” he said.

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