Biggest shipping and logistics company in Singapore. Neptune Orient Lines(NOL) is in the business of connecting continents and connecting countries. Itservices the international transportation and supply chain needs of a diversecustomer base, ranging from complex multinationals to small and medium-sizedimporters and exporters. Headquartered in Singapore, with revenues of US$8.2billion in 2007, NOL is the largest shipping and logistics company listed onSingapore Exchange. It has three main business operations: APL, APL Terminalsand APL Logistics. In fact, its business activities encompass all aspects of globalcargo container transportation and logistics, with services delivered by more than11,000 employees in around 140 countries.

Innovative company. NOL is an innovative company that constantly seeks toimprove its processes and systems. For example, it launched the world’s largestocean-capable shipping container, “Ocean53TM” to increase the amount of cargothat can be shipped from one location to another. By investing in new products andservices, it hopes to maintain its leadership position in the shipping and logisticsmarkets.

Challenges in 2009. We are anticipating NOL to continue to face difficulties in 2009after it mentions that it expects an operating loss for 4Q 2008. The global economyis facing financial problems and the slowdown in global trade will affect thebusinesses of NOL. This will affect the shipping volumes and the rates that NOL canbill its customers. Given the uncertainties, we expect a small profit of US$2m forNOL in 2009.

Improvement in 2010. Nevertheless, we expect the global economy to pick up in2010 and NOL is likely to be a beneficiary of the increase in global imports andexports. We expect shipping volumes to increase, and rates to stabilise and improvefrom 2010 onwards. As a result, we expect the profits of NOL to increase beginningfrom 2010.

Initiate coverage of NOL with a SELL rating and a target price of S$0.96. Webelieve that NOL is faced with the slowdown in the global economy. It hasresponded to the current crisis by reducing capacity on some of its routes fromOctober to reduce operating costs. Moreover, it is cutting its workforce by 1,000positions. At the same time, it is expecting an operating loss in 4Q 2008. As a result,we have a sell rating on the stock and we are valuing it at 0.35 time book value. Thisgives us a fair value of S$0.96.