Neptune Orient Lines (NOL)

Hi,

I think many participants are aware of the potential sale of APL and its effects. Secondly, you mentioned about the NAV of NOL, however one has to question the value of NOL's PPE on books, while the liner's asset is worth 8.3 Billion on the books, how much is its true worth. Most of the 8.3 Billion (maybe 80%) are ships and right now the market value of ships vis a vis their balance sheet is low. Let's say 6.5 billion of its PPE are ships with 50% old, 50% new; furthermore the EBIT of NOL's liner land has been negative/ EBITDA about 200M annualy, will you pay 6.5 Billion for the fleet, in a cyclical biz? My answer is likely no. This is why FSL trust and Rickmers sell way below NAV because their ship's market value is less than Book value.

Lastly, NOL is likely to use part of the sales proceeds to pare down its debts, I believe the LTV ratio for its fleet is quite high (this you will have to ask DBS as it is the arranger bank). Furthermore, it just carried out a massive fleet renewal program. So do not expect a bumper dividend. Maybe 6 cents/share as special dividend is plausible

Sell off APL and reshape NOL, back into container biz? Mmm... sounds like re-cycling and down-sizing...unless new markets are form... else... no clear advantage to NOL...

The world is tough place to be in now. Even G20 are thinking damn hard to crank up growth rates...

Here we have a company that has a proven track record of No Oil Left, surviving on the backing of sovereign plus shipping has been very tough... 3 good years if one is lucky and at least 7 bad years if I may recall...

When NOL was floated off in early 80s, they are probably one of the first innovator of derivative instrument - they issued warrants for Capex...

Since then, they have never stop vacuuming cash...

In this aspect, I opt for a simple and small but niche approach to shipping - Sp Ship via its low beta long lease models of RoRos...

Ow's track record is so much better that holders of Sp Ship have yet to be called upon for their new voyage...

I old liao... no time and energy to wait for turnaround that is constantly ellusive...

Odd Lots Vested
GG

(16-11-2014, 01:01 PM)brattzz Wrote: Sell off APL and reshape NOL, back into container biz? Mmm... sounds like re-cycling and down-sizing...unless new markets are form... else... no clear advantage to NOL...

Maybe NOL to be absorb into KeppepCorp/STE/SemMarine..etc..

(16-11-2014, 01:47 PM)brattzz Wrote: Maybe NOL to be absorb into KeppepCorp/STE/SemMarine..etc..

i think better not. All these good to great companies then may become also-rans.

My impression is this shipping business is in the arena of competitive market. Not sure how much can you reshape the company if they are going to do the same thing with more money. They need to reinvent themselves or quit.

I'm quite disturbed by what the management has intended to do.
You only sell your asset at a profit during or near the peak, you don't sell during the trough or when market seem to bottom out soon, unless the company is greatly in need of cash(spell trouble). Then the concern is, does the management knows well or experience enough to know how the market works?

The past CEO of NOL did a bad job, expanded their ships fleet during 2007 and 2010 when market flourished (building new ships is most expensive during peak period) and increase their debt level to high level...

Thats why I call this an Cigar contrarian approach... where you puff in one time good one and thats it... I agree, if APL is sold, NOL will be left with liner business which is commodities business & has no advantage. My point is the last market cap based on $0.76, is S$1.966 billion, if you read the business assets, most of the ships (the bulk of hard assets) are under the liner group as in those ships, while the logistics group which is APL & its ports, warehouses etc.are the prized assets.

At US$1 billion asking price, which easily translate into S$1.3 billion (Yahoo exchange rate today); there will be bumper surplus of cash & NOL's previous approach was to redistribute part of it back as Capital Return. If there are more bids, then the sale could even surpass its current market capitalization.

We dont look at total assets here, as the debts are already discounted in NAV US$0.73, SG$0.92 which already minus all debts, thus there are surplus balance if sale succeeds at US$1 billion+...

If life is so simplistic, then everyone will be laughing all the way to the bank liao...

Gd luck with your containers. I have been lucky not to have lost my marbles over No Oil Left...

Odd Lots Vested
GG

(16-11-2014, 05:59 PM)tonyking Wrote: Thats why I call this an Cigar contrarian approach... where you puff in one time good one and thats it... I agree, if APL is sold, NOL will be left with liner business which is commodities business & has no advantage. My point is the last market cap based on $0.76, is S$1.966 billion, if you read the business assets, most of the ships (the bulk of hard assets) are under the liner group as in those ships, while the logistics group which is APL & its ports, warehouses etc.are the prized assets.

At US$1 billion asking price, which easily translate into S$1.3 billion (Yahoo exchange rate today); there will be bumper surplus of cash & NOL's previous approach was to redistribute part of it back as Capital Return. If there are more bids, then the sale could even surpass its current market capitalization.

We dont look at total assets here, as the debts are already discounted in NAV US$0.73, SG$0.92 which already minus all debts, thus there are surplus balance if sale succeeds at US$1 billion+...

Since the posting of this comment, I mentioned I am vested but the resumption of fall today has prompted me to exit. Its likely a greater value will appear later, but I am no longer holding it based on my trade philosophy.

(16-11-2014, 12:01 PM)tonyking Wrote: Noticed bulk of views on NOL are pretty negative, as though its a sham coy which I believe its clearly not... NOL has its glory days during the SG independence, then swallowing up a larger APL w Tamesek backing till today. Thus adopting a contrarian approach, I did some research below & hope to shine some lights on this fallen angel...whose salvation may come after Nov 14 (read more below) [vested]

First, lets look at 31 Oct 14, Results Presentation: Group Core EBIT Trend
[img][/img]

Next, the last NAV was US$0.73 which translates to S$0.92
[Almost 18% of discount aka margin of safety from last close $0.76]

Then the Group Commentary
"Global economic prospects are uncertain. Persistent oversupply of shipping
capacity continues to negatively impact liner freight rates. Nonetheless, the
Group’s cost management and operational efficiency program remains on-track.
The Group aims to continue to improve its operating performance."

Not rosy, but its cost management is on track & clearly shown in the EBIT trend, with the traditionally Q4 & Q1 peak quarters, strenghtening US$, US X'mas & stronger economy, imports along APL will increase compared with past years when US is on "ICU" with QE123, now that QE3 is gone & US continues its recovery... APL will be a prized gem all logistics companies going after...

And to the most important point... NOL is selling APL!!
http://www.todayonline.com/business/nol-...stics-unit

Invitation to bids for APL (min.asking price US$1 billion) have been sent, asking for first round bids by November 2014. Already Korea's CJ Korea Express has signaled its interests, I suspect there's more unannounced bids coming (infer from past week's MACD & Force index divergence, lower price but higher MACD histograms & force index, similar for other indicators).

Putting US$1 billion ask price with retrospect to its 31 Oct 14's Q3 Total Assets of US$8.9 billion and Net Assets of US$0.182 billion; the successful sale of APL would results in a bonanza of liquid cash/shares (from purchasing company)... this sale if succeeds will likely results in base scenario "Return of capital/huge dividend" or exchange with new shares (depending on acquiring company's cash/share ratio).

This may well be a once in a lifetime cigar opportunity to profit from this conglomerate NOL.

TK's 2cents view...