Big ships may not end NOL's woes

SHIPPING and logistics group Neptune Orient Lines' (NOL) weak third-quarter and nine-month showing was hardly a big surprise to investors as liner freight rates were already falling in the face of continued global industry oversupply. Yet it is ironical that in a serious overcapacity situation, some are holding up the potential cost savings from a fleet of new mega container ships that NOL is adding to its fleet as the answer to its earnings woes.

NOL's group CEO Ng Yat Chung described Q3 as "one of its weakest peak seasons" the group has seen "in recent years". It reported a 60 per cent fall in Q3 net profit to US$20 million on the back of lower freight rates and volume. While the group saw a turnaround to a nine-month net profit of US$61 million (from a loss of US$321 million previously), most of that came from the sale of its flagship NOL Building that netted a gain of US$200 million. NOL also said it expected volatile freight rates and overcapacity to continue.

Not surprisingly, seven out of 10 analysts had to cut their FY 2013 full-year earnings forecasts for NOL following the results, and most maintained their "sell" or "underperform" rating on the company.