Here's why NOL isn't veering off course yet
Even a measly US$50m profit will not be surprising, said DBS.
According to DBS Vickers, after posting two quarters of huge losses, we expect NOL to move closer to breakeven in 2Q, and even a small profit of the order of US$50m would not surprise us, given that bunker fuel prices have also eased during that period.
Here's more from DBS Vickers:
NOL’s higher exposure to Asia-US lane implies less volatility. With Asia-Europe volume growth likely to be in the negative territory in FY12, and most of the new mega vessel deliveries suitable only to this trade, the Asia-Europe freight rates remain more susceptible to freight rate declines than the Asia-US trade, where liners typically contract a major proportion of volumes on annually negotiated rates.
To recall, NOL derives about half of its container shipping revenues from the Asia-US trade and less than 25% from the Asia-Europe trade. In the industry, NOL’s high exposure to the Asia-US trade is probably matched only by OOIL and Wan Hai Lines.
New ships may not make a material difference in the near term. NOL has received six of the 810,000 TEU ships ordered in June 2007 (two more were added to this series in 2010) YTD in 2012, but since these were contracted at a still high price of US$125m before the 2008-09 crisis, more significant cost savings will only be apparent once the 24 ships ordered in 2010-11, at lower prices, are delivered in 2013-14 and replaces some of the expensive chartered-in fleet.