1Q14 net loss of USD98m in line with our expectations. Core EBIT losses narrowed to USD65m (1Q13: USD76m).

Reduced losses largely attributable to the 6% YoY improvement in average slot cost.

Guidance still negative. Maintain HOLD with unchanged TP of SGD1.00, based on 1.0x FY14E P/BV.

What’s New

NOL reported a net loss of USD98m for 1Q14, in line with our expectations. Core EBIT losses for the group narrowed to USD65m (1Q13: USD76m) after adjusting for the one-off gain on sale of NOL building in 1Q13. The better performance could be attributed to the 6% YoY improvement in average slot cost for its liner division. Despite the 5% YoY decline in liner revenue, core EBIT losses for its liner division narrowed to USD83m (1Q13: USD92m) on better cost structure. Performance for the logistics segment held steady with core EBIT of USD18m (1Q13: USD16m). The group’s net gearing rose to 2.03x (end-2013: 1.82x), the highest level in the past decade. Management’s guidance remains negative, citing pressure on liner freight rates due to the oversupply of shipping capacity.

What’s Our View

We expect better performance in the coming quarters to shave its full-year net loss to USD28m. After incurring a cash outlay of USD248m in the quarter, we expect minimal outstanding capex for the rest of the year. The improved cash generation should therefore drive its leverage down to 1.96x by year-end. While the recent improvement in spot freight rates is encouraging, we think the chronic capacity oversupply will cap further upside in rates. In our view, most negatives are already priced in with the stock trading at 1x FY14E P/BV. Maintain HOLD with TP unchanged at SGD1.00, pegged to 1.0x FY14E P/BV, in line with the historical average.  

Source: Maybank Kim Eng Research - 15 May 2014