NOL sinking along with shipping rates

First it was rising fuel costs, now it’s the consistent fall in shipping rates that’s causing trouble to the company that lost $10 million in the first quarter.

In May 2011 NOL Group President and CEO Ronald D. Widdows said, “In spite of year-over-year volume growth, a softer than expected Lunar New Year period and rising fuel costs have interrupted our momentum.”

Thoughts from OCBC Investment Research:

Neptune Orient Lines’ (NOL) recently announced that its container shipping operating performance for the period between 9 Apr and 6 May saw an increase in container shipping volume of 9% YoY on the back of higher volumes carried on the Intra-Asia and Asia-Europe routes, but average revenue per Forty-foot Equivalent Unit (FEU) actually fell 4% YoY due to lower rates on the Asia-Europe trade lane. We believe that shipping rates will remain under pressure in 3Q and 4Q as the consistent fall in shipping rates across the industry amidst increasing volume points to carriers being under pressure to fulfill utilization targets. As such, we reiterate our view that prospects for NOL in FY11 are not as rosy, and have adjusted our FY11 estimates down further by lowering freight rate growth by 2% and reducing our fair value estimate from S$2.05 to S$1.95.

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