NOL's logistics business profits inched 6% higher

At least there's some good news.

According to Nomura, while the container shipping business returned to profit from 2Q12 and 3Q12 (operating profit of USD7mn and USD55mn, respectively), the shipping business returned to a loss again in 4Q12 with an EBIT loss of USD95mn and EBIT margins of -4.5%. 

This is due to lower average 4Q12 freight rates (-7% q-q) and higher costs (+1% q-q). Given the container sector was loss-making the stronger sequential volumes led to larger losses as volumes grew +13% q-q.

Here's more from Nomura:

During 4Q12, Asia Europe freight rates dropped 8% q-q to USD2,471/FEU, while transpacific freight rates declined 6% q-q to USD3,507/FEU.

The sequential rate decline was better than spot rates given Shanghai Shipping Exchange declined -12% q-q, which highlights NOL having larger long-term contracts.

Accounting for only 16% of FY12 total revenue, the logistics business continued to be profitable with an EBIT of 6.0% in 4Q12 and 4.3% in 2012. 

During the FY12 earnings results conference call, management expects the container shipping industry would ‘continue to face oversupply problem with fluctuations in the container freight rates’.

Yet, management expects 2013 would be better than 2012 due to: 1) better costs base as a result of a modern fleet and more efficient processes; and 2) higher freight rates from the beginning of 2013 (based on Shanghai Shipping Exchange data, the overall YTD average freight rate is 24% higher compared to 2012).

Also, as highlighted by the company, NOL is more optimistic on transpacific routes due to improving US economic indicators, such as housing data.

This is consistent with our Nomura’s economics team of a stronger economic growth in US than in Europe.

We view this as a good sign for NOL, which has the highest exposure to transpacific routes (based on volumes) amongst our pure container lines under coverage.