Citi cuts Neptune Orient target price, keeps buy

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

Citigroup has cut its target price on the world’s seventh largest container shipping firm Neptune Orient Lines (NOL)(NEPS.SI) to $2.40 from $2.50 but keep its buy recommendation on the stock.

Citi said low freight rates and the surge in bunker costs with corresponding lag in bunker surcharge implementation may hurt the company’s earnings.

NOL is scheduled to report its first quarter results on May 13 and Citi said it was expecting a net profit of more than US$30 million ($37 million), compared to a net loss of US$98 million a year ago.

The freight rates charged by the company were down by 2% on a year-on-year basis partly due to weakness in Asia-Europe routes.

Citi said rates may be near the bottom as tight capacity of container boxes as well as almost full deployment of container ships would make freight rates very sensitive to any upturn in demand.

NOL shares have declined by nearly 16% since the start of the year, underperforming the broader Singapore market which has fallen by almost 3%.

On Friday, NOL shares were up by as much as 2.8% to $1.86 as a sharp fall in crude oil price (CLc1) this week prompted investors to buy shares in the transportation sector.