NOL - Sell: Valuations Approaching Trough, but No Positive Catalysts

Lay-ups at inflexion – According to AXS-Alphaliner, 1.41mn TEU, or 11.4% of current global containership capacity, stood idle as at 16-Mar-09, +4.4% from 2 weeks ago, suggesting that the rate at which ships are left idle may be at inflexionError! Reference source not found.. More ships in 1,000-3,000 TEU range were idle in the last 2 weeks because their short-term charters expired and were replaced by fewer numbers of larger vessels as liners consolidate and merge services.

But still more lay-ups ahead – Maersk announced on 9-Mar it may lay-up up to 25 mid-sized ships in 2009, on top of 8 idled in Dec-08. Industry-wide, more merged services and route cutbacks, coinciding with progressive deliveries of newbuilds (current orderbook is at 47% of existing fleet; suggest lay-ups will continue, but base effects mean that rate of lay-ups will slow down.

Singapore YTD container throughput -19.7% – Decline is consistent with that in Chinese ports (-18% and -21% YTD at SH and SZ ports respectively). Excluding CNY effects, SG’s Feb-09 yoy decline could have been worse than the reported -19.8%. Poor volume prospects may encourage cold lay-ups and earlier demolitions; downturn should worsen before signs of recovery emerge.

No re-rating catalysts despite trough valuations – NOL shares reached an intra-day low of S$0.85 on 12-Mar-09 but rebounded after NOL quashed speculation of an impending rights issue. Current valuations at 0.46x forward PB is near historical troughs (0.3x in ’98 crisis, 0.4x in ’02 crisis), but we caution against being tempted by cheap valuations – stock is likely to remain range-bound due to lack of positive catalysts. Current stock price is cum-div of 4¢. Maintain Sell.

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