NOL

NOL released 3Q13 results which were below estimates. Net profit came in at US$20m (-60% y/y and versus a net loss of US$35m q/q), although this was boosted largely by a US$32m worth of forex gains. Without the one-off gain, 3Q13 would have been a loss making quarter, driven by a 5% decline in trade volume and 9% contraction in rates, with revenue coming in at US$2.1b (-10% y/y, -0.1% q/q) While the industry managed to push through a decent amount of peak season rate hike in 3Q13, spot rates have declined sharply in recent weeks post peak season, with rates on the Shanghai Containerized Freight Index (SCFI) now comparable to levels reached in 4Q11, which was a quarter when NOL reported huge losses of US$320m. Due to the cash outlay to fund its ongoing fleet renewal, Maybank-KE estimates that NOL’s net gearing level could reach a high of 1.6x at the end of the quarter, with continued CAPEX spending and sustained pressure on margins. As such the house expects a further increase in leverage, and for NOL to end FY14E with a net gearing of 1.8x. Hence, the house believes that NOL could suspend dividend payments for the next two years and do not rule out a round of fundraising to shore up its weakened balance sheet. Overall, Maybank-KE cut its earnings forecast to reflect the weak rate environment and project another year of losses for NOL in FY14, noting that while ongoing cost cutting initiatives by NOL will lower average slot cost, expected depressed freight rates will likely keep profitability in check. Latest broker ratings as follows: Maybank-KE maintains Hold with TP $1.01 Deutsche maintains Hold with TP $1.03 CIMB upgrades to Neutral from U/p with TP $1.16 UOB Kay Hian maintains Buy with TP $1.30 CS maintains U/p with TP $0.95