NOL

NOL: big negative surprise in 4Q11 results.
NOL reported a net loss of US$320m, 145% higher than consensus loss forecast, in the weakest quarter in at least a decade.
The key driver was higher unit operating costs, +4.5% yoy but flat qoq, given higher industry avg bunker fuel prices in 4Q11 (+3% qoq, +39% yoy).
While NOL is targeting US$500m cost reduction for 2012, of which bunker savings will contribute 20%, analysts believe the amount is ambitious.

On operating metrics, 4Q11 container volumes were down 1% yoy, as trade on the major Transpacific and Asia-Europe routes fell 11% and 4% yoy, rptvly. Utilization rate at 92% was flat vs 91% yoy.
Freight rates declined 15% yoy and 8% qoq, with rate deterioration prevalent across all trade routes. In particular, Asia-Europe saw the largest correction (-21% yoy and -6% qoq).

Following the strong rally in NOL’s share price, +29% ytd vs STI’s +14%, Morgan Stanley says the bigger than expected 4Q11 loss may give investors reason to take profit, as the market remains skeptical of a sustainable rate recovery and the overhang of a weaker spot rate post CNY remains.

HSBC, Nomura also note that while carriers have rationalized capacity, idle capacity could return as soon as freight rates move higher. Believe that the proposed rate increases by several major carriers (to be effective 1 Mar) may not be 100% successful, given current overcapacity and weak demand from Europe.

HSBC reiterates Underweight with TP $1.1.
Nomura maintains at Reduce with TP $1. Says stock is expensive at 1.4x FY12E P/B vs the mid-cycle avg of 1x.
Macquarie keeps at Neutral with TP $1.08.