NOL cruising into riskier waters: DBS

This year it will struggle with higher oil prices, wobbly rate hikes and questionable profitability.

What makes it worse is that the shipping and logistics firm is just coming off "one of the worst years" due to terrible freight rates and climbing bunker fuel prices.

Here's more from DBS:

One of the worst years. NOL recorded significantly higher-than-expected losses of US$320m in 4Q11, as freight rates crashed in the quarter while bunker fuel prices continued to spike up. Overall net loss for FY11 came in at US$478m, on the back of a 10% decline in average freight rates during the year to US$2,501/ FEU. Volume growth was decent at 5%, but the industry struggled with overcapacity issues in FY11. Bunker fuel prices also surged 36% during the year, leading to a 2% increase in NOL’s FY11 operating expenses to US$2,805/FEU.

Rates will improve but not enough to counter oil price rise. We reckon liners might be able to pass through about 50% of the coordinated rate increases proposed on the main trade lanes (Asia-Europe in March and Asia-US in May), but the surge in bunker fuel price to current levels of US $733 per ton (compared to average US$658 per tonne in 2011) means that return to profitability remains uncertain. Oil prices could rise even further if Iran concerns blow up.

Moreover, we are skeptical about how long the rate hikes will last on Asia-Europe, given that carriers will be adding more than 50 vessels of >10,000 TEU size in 2012. Though Maersk has adopted a less aggressive stance lately, it remains to be seen how it reacts if MSC ups the ante in 2012. Overall, we widen our net loss estimate for NOL in FY12 to US$197m from US$123m earlier.