NOL

NOL: 2Q13 results above estimates; Net loss of US$34.6m improved from a loss of $117.9m the previous year. The loss were due to lower average freight rates (-11 ppts y/y), mitigated partially by operational cost efficiencies and lower fuel cost. The lower fuel cost would likely be due to its ongoing fleet optimisation. Among the routes, revenue on transpacific and Asia Europe declined 13% and 18% q/q, with transpacific due to lower volumes (freight rate was flat), but Asia Europe due to declines in freight rates and volumes (-7% and -11%). At end-1H13, 50% of NOL’s newbuild vessels were delivered. Two 14,000 TEU vessels and three 9,000 TEU vessels are expected to be delivered to APL in 2H13. These additions of very large containerships will create better efficiency and reduce APL's vessel per slot cost going forward. Despite the smaller-than-expected quarterly loss and recent rebound in spot freight rates, majority of the street remain negative on the container shipping sector, citing that freight rates have peaked, especially given the lack of peak season (mild at best). UOB Kay Hian expect NOL's 2H13 earnings to see a substantial improvement due to a big jump in AE rates since 1 Jul, whereas rates in 4Q13 will depend highly on carriers' capacity discipline, which house believe is still intact for industry leaders such as Maersk. Latest broker recommendations as follows: Maybank KE keeps Hold with TP $1.28 HSBC keeps at Underweight with TP $0.90 Nomura maintains Reduce with TP $0.90 Standard Chartered maintains In-line with TP $1.10 Credit Suisse maintains Underperform with TP $0.95 UOB Kay Hian keeps Buy with TP $1.30 OCBC downgrades to Sell with TP $0.95 (from $1.17)