DBS says NOL fully valued, price target S$1.05/shr    2.55 pm BUSINESS TIMES

November 1, 2011, 2.55 pm (Singapore time)

DBS says NOL fully valued, price target S$1.05/shr

By YEO AIQI

DBS Group Research said on Tuesday that Neptune Orient Lines (NOL) shares remained fully valued and pegged a price target of S$1.05 a share for the container shipping group.

The research house said NOL's net loss of US$91m in third quarter (3Q) was in line with its estimates.

Average freight rates for 3Q fell 19 per cent from a year ago and remained flat quarter-on-quarter. Low freight rates coupled with high fuel costs dragged down the company's profitability.

NOL's balance sheet is also looking increasingly stretched. It has incurred more than US$1.2 billion in capex YTD in FY11, and will need to invest similar amounts in FY12/13 to finance its existing orderbook of 34 new vessels. Net gearing level has also increased to 0.56x at end-3Q11 from 0.12x at end-FY10, and if losses continue,could reach unsustainable levels or even lead to a cash call by the end of FY12.

Hence, DBS's analyst Suvro Sarkar remains pessimistic on the container liners' outlook in the near term.

'Unless we see a coordinated effort by the liners to lay up capacity to the tune of at least 5-6 per cent of fleet or clear signs of inventory restocking activities in the US, we are unlikely to call for a bottom. We expect NOL to remain in the red in FY12/13,' Mr Sarkar added.

Neptune Orient Lines (NOL SP, N03) – SELL

 

Technical SELL with a target of S$0.905, resistance $1.08. This stock is likely to break down from consolidation…

From : UOB Kay Hian