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Goldman Sachs report spurs fresh talk of possible merger or acquisition
Melissa Tan
26 March 2015
Trading activity in shipping company Neptune Orient Lines (NOL) surged to a two-year high on Wednesday, buoyed by a report from an international broking house that upgraded the stock to a ‘buy’ and fresh rumours of a potential takeover.
NOL, South-east Asia’s biggest container line, jumped 6.9 per cent or 6.5 cents to S$1.01. Some 23 million shares also changed hands, notching the highest daily volume since Jan 10, 2013.
This came after Goldman Sachs upgraded the stock from ‘neutral’ to ‘buy’ with 12-month target price of a S$1.30 on Wednesday, citing an expected recovery in international trade, the company’s stronger balance sheet and a possible merger and acquisition (M&A).
NOL has posted four straight years of underlying losses but may start making profits again in 2015 due to its exposure to trans-Pacific trade from Asia to the United States, Goldman said. It expects stronger consumer spending in the US to boost that trade this year.
Goldman added that the sale of NOL’s profitable logistics business to Japanese freight forwarder Kintetsu World Express for US$1.2 billion in cash would shore up NOL’s balance sheet. “Balance sheet gearing had been our concern in the past, but we see this as partly restored.”
It also hinted at a possible takeover for NOL.
Noting that the company’s valuations have reached a historic trough, it said: “Longer-term, we think ongoing consolidation of the industry may mean potential M&A opportunities.”
It did not say in its report whether NOL was more likely to be the acquirer or acquired, and declined to elaborate when contacted by The Business Times.
Still, the report triggered a fresh wave of takeover rumours, which analysts said may have propelled the stock upwards on Wednesday.
The US$1.8 billion container line’s natural partner would be Orient Overseas International, controlled by the family of Hong Kong’s first post-colonial leader, according to a Bloomberg report that cited Credit Suisse.
The shipping industry has already seen two high-profile M&A deals in recent months, including the merger of Germany’s biggest container shipping line Hapag-Lloyd and Chile’s CSAV to form the world’s fourth-biggest ocean carrier, as well as Hamburg Sud’s purchase of Chilean shipper CCNI. Both happened last year.
NOL had also said after announcing its APL Logistics sale in February that it would consider all options for its liner business. When contacted on Wednesday about a possible M&A, an NOL spokesman told The Business Times: “It is not our practice to comment on market speculation.”
Analysts were equally cagey on the topic of whether NOL may be the next in line.
One analyst from an international brokerage, who did not want to be named, said that none of the big M&As over the past 12 months have involved Asian shipping firms, so it would be difficult to infer a trend. There are no obvious buyers, he said, adding: “There are always people who have cash, like Maersk, but it’s whether they want to grow through acquisitions or organically.”
However, DBS analyst Suvro Sarkar said in the Bloomberg report that European shippers such as Hapag-Lloyd may be interested in NOL for its trans-Pacific routes.
Other analysts think NOL is more likely to be looking to buy, now that it has cash after selling APL Logistics.
Rahul Kapoor, a director at Drewry Maritime Services, said that NOL has become a symbol of the Singapore shipping industry, and an exit by Temasek Holdings is very unlikely. Temasek paid S$2.80 per share in 2004 to boost its stake in NOL from 30 per cent to around 69 per cent. It now owns about 67 per cent, according to Bloomberg.