NOL trading below book

• NOL – Upgrade to BUY with TP of S$1.45.

NOL underperformed peers in FY12 and is still trading below book, and looks set for a re-rating in FY13

Potential for re-rating is emerging for the container shipping sector. Improved industry discipline and liners’ renewed focus on profitability should lead to better freight rates and earnings in FY13, compared to FY12. This will help offset concerns arising from continued demand-supply imbalance, whereby container trade demand growth of 5% will trail containership supply growth of about 8% in FY13.

With market sentiment improving as well, we should expect re-rating for this cyclical sector. Cyclical plays like container shipping will be early movers in a global recovery. We prefer liners with more exposure to the US and Intra-Asian routes.

Rates on the Asia- Europe route will be most vulnerable to capacity additions, and returns may be sub-par for some time. Thus, our analyst has upgraded NOL to BUY with a TP of S$1.45 (Prev S$ 1.26). NOL has underperformed its peers in FY12 and is still trading below book, and looks set for a re-rating in FY13.