OCBC lowers target on NOL to $1.63; keeps hold

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 1.63

OCBC Investment Research has lowered its target price on Singapore container shipping firm Neptune Orient Lines (NOL) (NEPS.SI) to $1.63 from $1.95 and maintained its hold rating.

OCBC said NOL’s average revenue per forty-foot equivalent unit has continued to fall in May due to lower rates on the Asia-Europe trade lane. The brokerage expects the rates to remain weak in the second half of 2011 due to fierce competition among carriers and poorer utilisation levels.

Even with the growth in volume demand during the peak season, it will be insufficient to offset the drag caused by the growth in excess capacity, OCBC added.

NOL announced earlier this month it had signed letters of intent for 12 new vessels and is also upgrading an order placed last year for 10 ships for a total of US$1.54 billion ($1.90 billion).

OCBC said it views the expansion plan positively as NOL seeks to take advantage of the current low-cost environment for shipbuilding to reduce its average costs over time and to keep pace with competitors who had made orders for similar vessels.

However, the brokerage warned that unless the global economic recovery can keep up with the expected increase in vessels in 2012-2013, rates in the container shipping industry are likely to remain depressed.

At 11:01 a.m., NOL shares were flat at $1.54 on a volume of 9.4 million shares. The stock has fallen around 29% so far this year.