Container rates could rebound; NOL top pick - CIMB

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED
Research House: CIMB

CIMB says container shipping rates have the potential to rebound quite strongly in the next three months and that the sector’s longer-term fundamental outlook for 2012-2013 also remains robust. 

It maintains its Overweight stance on the sector, with Neptune Orient Lines (N03.SG) as its top pick, rated Outperform with a $2.65 target price.

“Though freight rates continued to decline across the major east-west trades last week while bunker fuel price has risen to US$640/tonne from just US$514 ($653) at the beginning of the year, forward-looking indicators for both the U.S. and Europe continued to strengthen and some carriers are warning of potential box shortages when late-spring and summer demand returns." 

It says carriers like NOL with locked-in contracts that have bunker adjustment factor (BAF) clauses will fare relatively better, though lagging adjustments to the BAF could still pressure margins. 

It adds, NOL also has a larger exposure to the Transpacific where the economic momentum is the strongest. NOL is down 0.5% at $2.07.