NOL

NOL: poor 1Q13 results; below expectations. Headline net profit came in at US$76m, but this was mainly due to the one-off gain of US$200m from the completed sale of NOL HQ building. Adjusting for exceptional items, Nomura estimates core net loss at US$107m, which widened slightly from a net loss of US$83m q/q, though improved significantly from a net loss of US$246m y/y. Mgt blamed this on frail overall mkt demand, seasonal weakness an persistent overcapacity in the industry. Nomura expects 1H13 earnings to remain loss-making for NOL; eyes a return to profit only in 2H13, driven by recovery in freight rates. Nevertheless, mgt believes cost cuts and new ships will help it to improve performance in 2013, after posting 3 annual losses in the past 4 years. NOL prepares to take delivery of 14 fuel-efficient vessels this year. It added 10 ships last year and sold some of the older ones. Deutsche cuts its core earnings forecasts to take into account the poor rate environment so far this year. Downgrades from Buy to Hold, with lower TP of $1.14 (from $1.36), after reducing the P/B multiple from 1.2x to 1.0x. Nomura maintains Buy with TP $1.38, notes NOL’s problems are not new, and the losses in the industry is likely to drive capacity control again and drive rates higher.