Neptune Orient Lines’ shipping business disappoints

The liner is sailing in rough seas with net loss of US$320.4m still significantly wider than the 3Q11 loss of US$91.1m.

Its liner business unit achieved 4Q11 revenue of US$2.0b (-16% YoY), mainly arising from the 15% YoY decline in average revenue per FEU to US$2,342, says KimEng.

On a full-year basis, cost of sales per FEU increased 2% on the back of a 33% rise in bunker prices. This resulted in a sharp contraction of the liner’s core EBIT margin by 11.5ppt to -5.6% in FY11.
Looking ahead, management has set an aggressive US$500m cost-savings goal to improve its competitiveness amid challenging industry conditions.

Logistics was the saving grace. Logistics reported steady revenue of US$0.39b in 4Q11 (+2.6% YoY), driven by buoyant demand for rail and land-based logistics services from automotive and retail customers. KimEng analyst Eric Ong however notes that the higher earnings were partly offset by the spike in operating and technology costs to support growth and narrower margins in International Logistics.

To fully finance the group’s capex for all its 32 newbuild vessels, KimEng estimates that net gearing would creep up to 1.2x in FY12F. “Given its increasingly stretched balance sheet, we see a potential equity-raising risk especially with the mounting cash losses,” says Mr Ong.

“We raised our FY12 loss forecasts to US$160.3m after factoring in higher bunker costs assumption,” he adds.