Neptune Orient Lines runs aground as losses approach $1bln

It may be time to abandon ship as NOL lost almost $1billion and analysts see no signs of profits on the horizon as the sharks circle.

No dividend was declared, and the reported net loss was 10.6% worse than as forecast by Phillip Securities Research Pte. Ltd.

Revenue fell due to shared declines in container shipping volumes and rates. NOL's active cost management proved insufficient to compensate for the drop in revenue.

The company further expects to incur losses for the first half of FY2010F, even as it mentions that shipping volumes and rates have improved in January 2010.

It recognises, however, that there are risks regarding whether these improvements are sustainable.

Phillip Securities, nevertheless, expects NOL to report a smaller loss of US$383 million in FY2010F due to the slowly recovering global economy.

However, the operating environment is expected to be better in FY2011F and FY2012F with the anticipated improvement of global trade. Net profit is US$203 million and US$303 million in FY2011F and FY2012F respectively.

Phillip Securities further predicted that the NOL will continue to incur losses this year in light of excess capacity in the shipping market.

NOL, however, has indicated there are signs of improvement in early 2010 and is confident that rates will be higher than last year.

The company management has also appeared more optimistic at its results briefing compared to last year.

Phillip Securities thus is upgrading its recommendation from hold to buy and is raising the fair value from S$1.75 to S$1.95, or 1.30 times book value for FY2010F.