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Neptune Orient Lines – Rebound In Play?
Trend Spotting | 23 April 2015
By:

This article is written by Joey Choy ; one of the Top Tier Remisiers (Stock Brokers) and Traders in Phillip Securities.

Business Summary

Neptune Orient Lines Limited (NOL) is a Singapore-based shipping and transportation company wholly owned by the Singapore Government. The Company’s business activities encompass aspects of global cargo container transportation and logistics.

Technical Analysis
Technically, we have seen NOL staged a miraculous recovery since hitting a bottom in November last year. In early January, we have seen it break above the critical $0.85 resistance before trading upwards to $1.05 and then consolidating sideways for about 2 months from $0.93 to $1.05.

A bullish Inverse Head and Shoulder has been spotted with neckline resistance at $1.05 – $1.06, which it had just broken above last week on exceptionally high volume.

Inverse H&S

From a longer term perspective, it’s wise to note that the $1.05 level was originally the support level for most part of 2012 and 2013 until it broke below in January last year. This support turned resistance was cleared last week putting an end to the larger consolidation since January last year.

For the past week, it has been consolidating in the range of $1.10 to $1.15 after trading to form a new high. As long as $1.10 remains as the near term psychological support, there can still be more room for a rebound above $1.15 now.

Immediate target would be from $1.18 – $1.20 level if it manages to stage a further breakout above the $1.15 immediate resistance level. After these levels are cleared, we can then expect to see more strength to $1.30 then $1.36 which were the highs formed in January last year.

Looking at the trend from the moving averages (MA), we can see that both the 20 day and 100 day moving average are pointing upwards firmly. The reversal of the 100 day longer term MA is a critical signal of a trend change forming as it has been sloping downwards for the past 2 years since April 2013, and finally we have seen it maintain its poised over the past one month.

Another thing to note is the 100 day MA line has also just staged a crossover above the even longer term 200 day MA line. This too can suggest a bullish reversal in trend with a shorter term MA crossing above a longer term MA along with rising prices.

Looking at the technical indicators, we can see that MACD is still trending upwards after staging a bullish crossover about a month ago. Momentum can still continue with it staying above the zero mark and may even accelerate with it breaking above the $1.15 immediate resistance level.

Stochastic and RSI indictors may have just hit slightly in the overbought territory, which is normal given the huge rebound we have seen. There can potentially still be more legs to the rally further with them continuing their upward moves.

From a longer term trend line view, NOL has also clearly broken upwards above the downward sloping channel resistance line in February. This downward resistance trend line has led the decline for more than 3 years since February 2012.

Any breaking above it would be a key positive for any upwards reversal which is what we are witnessing right now at the initial phase.

Fundamental Analysis

From a fundamental outlook, we have seen NOL’s gearing pared down significantly after its disposal of ALP logistic for US$1.2 billion.

It is currently trading at 0.7x P/B which is below its 3-year average of 1.2x. NOL could also be poised for a business recovery in 2015 as we have seen bunker fuel prices declining from US$600/ MT to less than US$300/MT in a slightly more than 6 months.

As NOL’s liner business consumes about 3 million MT of bunker fuel per year, this can mean significant cost savings.

Separately, Goldman Sachs has recently upgraded NOL to Buy from Neutral and lifted TP to $1.30. Echoing other houses, it favors container over dry bulk and in particular Transpacific routes to outperform in 2015E, citing favorable supply-demand outlook and industry structure.

As NOL derives approximately 50 percent of revenues from Transpacific container segment, 2015 could be turning point for the company after four consecutive years of losses.

Goldman expects NOL balance sheet to be restored this year with the announced sale of APL Logistics. NOL is trading at 0.7x P/B, which is the lowest in the industry while having higher-than-peers ROE sensitivity to margin, and substantial margin improvement is expected in 1Q15 and 3Q15.

You can follow Joey on his websites for further calls here.


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