BUY | Target price: SGD 1.35

Fed’s QE3 and EU bond-backing builds solid floor. The recent announcement by the EU for unlimited, conditional bond purchases, followed by the Fed’s QE3 announcement are, in our view, clear signs of unprecedented support for the global economy. We revise our forecasts to account for a demand-led container shipping recovery, and upgrade NOL from a SELL to a BUY, advising an early entry into a stock which we believe could now return to profitability in 2013. 2014 further tips the balance in its favour due to a more subdued capacity growth. The resulting low-interest rate environment should also mitigate concerns regarding financing costs.

Staying lean during famine. NOL had been embarking on a cost-saving drive to the tune of USD500m for 2012 which had been reported to be well on the way to fulfillment. Having accounted for such cost savings in our forecasts, we also applaud management for their swiftness and flexibility in making tough calls such as corporate streamlining, shaping the company as a leaner machine to be well-poised to ride the wave of recovery in container shipping.

2013 a stepping stone to plump 2014. While the demand-led boost to global trade will likely only partially mitigate the daunting 10% increase in 2013 supply, 2014 should provide the clear light at the end of the tunnel with a relatively subdued 4% increase in supply YoY. It is this visibility for profitability that would reap investors plump rewards for an early entry now.

Calling the bottom now, upgrade to BUY. Our revised forecasts point towards a return to profitability in 2013, and we believe it would trigger a re-rating of the stock to a 1.2x P/B from current ~1.0x P/B. We advise investors to take advantage of residual weak sentiment from NOL’s exclusion from the STI to own a stock well poised to ride the recovery cycle. Upgrade from SELL to BUY, with Target Price of USD1.35 pegged to mid-cycle 1.2x FY2013 P/B, implying 20% upside.

Source: Maybank Kim Eng Research - 21 Sep 2012