Neptune Orient Lines (NEPS.SI): Quashing
market talk on rights issuance; near-term
positive
Company Name: Neptune Orient Lines Ticker: NEPS.SIPrice:
0.88 52-Week Price Range (S$): 4-1
Year Net EPS EPS . Dividend
To Income Diluted Growth P/E Yield
December US$ US$ Dil% X %
2006 317.02 0.22 -60.71 2.60 8.73
2007 489.52 0.33 50.00 1.74 15.71
2008E 202.86 0.14 -57.58 4.09 8.73
2009E -272.31 NA NA NM 8.73
2010E 103.53 0.07 136.84 8.19 8.73
Price Performance (absolute): 1m: -25% 3m: -26% 12m: -74%
Price Performance (relative): 1m: -13% 3m: -12% 12m: -25%
Stock Rating: S
What's changed
On March 13 before the afternoon trading session opened, NOL announced that it is not
undertaking a rights issue. The news is understandably bolstering the share price to
S$0.99, which is now above the levels when the media reports surfaced on Monday,
March 9. The company is continuously evaluating its financing options.
Implications
We maintain our view that the company has access to ample credit facilities of more than
US$1.0bn to meet its working capital requirements and limited capex plans of US$142mn
for 2009E, of which only US$13mn relates to vessels. Should market conditions
deteriorate further, we would not rule out the possibility of equity raising initiatives down
the road. Given the uncertainty surrounding the containership market, we would avoid
NOL stock until we begin to see further indicators of inflection.
Valuation
Our 12-month SOTP-based target price of S$0.80 is based on a target fleet multiple of
0.47X, underpinned by an estimated average return on fleet of 7.4% (2009E-10E) and
WACC of 11.3%. Maintain Sell.
Key risks
An unexpected recovery in US would potentially derail our thesis. We also note that the
industry is trying to exercise greater capital discipline by plying at slower speeds and
anchoring idle containerships. Admittedly, undemanding valuations could limit downside,
as well.
The Goldman Sachs Group Inc. does and seeks to do business with companies covered in
its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment
decision.
March 13, 2009 Analyst Comment
2 Goldman Sachs Global Investment Research