However, given the sharp 53% surge in NOL’s share price over the past month, we would expect investors to take profit on the news, which could present an entry level for investors looking beyond what we think could be the worst quarter in 2009 for the industry. With one of the last remaining negative share price overhangs being digested by the market, we would expect NOL stock and the containership sector to re-rate, as investors anticipate losses to lessen from mid-09 onwards with volumes recovering from dismal levels of 1Q. 1Q09 results release May 16.
Our estimates remain unchanged, as the loss is within our expectations. We estimate a full-year pretax loss of US$394mn for 2009 and assume tax credits of US$90mn to partly mitigate the losses. We have a Neutral rating on the stock, because we believe that most of the negatives are discounted at current valuations, with the stock trading at a 40% discount to its fleet.
Our 12-month SOTP-based target price of S$1.30 is based on a target fleet multiple of 0.53X, underpinned by an estimated average return on fleet of 7.2% (2009E-11E) and WACC of 10.3%. Advise adding on weakness. Upside risk: Cost-cutting initiatives could provide upside earnings surprise. Downside risk: Possible rights issuance.
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