NOL

NOL: At the ongoing dbAccess Asia 2014 conference, mgmt continues to try to reduce costs, which it thinks will differentiate the company from competitors. Industry capacity growth of 6-8%/annum is expected over the next 2-3 years compared to demand growth of 4-5% pa. The demand/supply pressure should cause the operating environment to continue to be tough. The US and European demand appears to be on a recovery trend. Volume on its Transpacific route continues to be firm, with mid single digit growth expected by the company this year. Over the short term, management still foresees a challenging container shipping rate environment. NOL expects its capacity to shrink 5% this year given the contracted return of charter-in vessels. The company expects capex to decline y/y this year because of less deliveries. Financing requirement is mostly for capex. DB continues to be concerned about the oncoming supply of newbuild vessels into the industry, which may prevent the company from quickly returning to ROE levels above their COE. House see downside risk to consensus earnings forecast, and material downside to its TP of $0.81 (Sell rating).