Don't be fooled by NOL's earnings in 3Q12: DBS

Choppy earnings still ahead.

According to DBS Vickers, earnings turned around in 3Q12 after 6 consecutive quarters of losses. But net profit of US$50m came in at the lower end of consensus estimates, as Asia- urope rates slid faster than expected towards the end of the quarter.

Here's more from DBS:

Average freight rates were flattish q-o-q at US$2,603 per FEU, as the peak season surcharges did not come to fruition.

Liner opex per FEU down another 2% q-o-q. Management remains committed to the planned US$500m cost reduction in FY12, as NOL has achieved US$360m in savings YTD, aided by its fleet renewal program. It has taken delivery of 7 new more fuel efficient 10,000 TEU vessels so far in FY12, while returning 24 chartered-in vessels with a total 113,000 TEU capacity to owners.

But brace for choppy earnings ahead. A number of liners have taken out loops from their Asia-Europe networks in recent weeks but rates continue to slide. Asia-Europe rates are now below breakeven at just above US$1000 per TEU, down more than 40% from the peak earlier this year.

While liners plan to impose a rate restoration of about US$500 per TEU from November, we expect limited success, given the poor demand dynamics on the route and the seasonal low.

Looking into FY13, we expect another year of unfavourable demand-supply dynamics. With Maersk’s jumbo 18,000 TEU vessels expected to hit the waters next year, further rate wars cannot be ruled out. Thus, we believe any sharp rate increases will be short lived.

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