NOL’s volumes –35% yoy, –14% mom — This is the sixth consecutive month of volume decline, due to 1) continued deterioration in demand on all major trade lanes; 2) earlier lunar new year in 2009 than 2008. Average revenue per TEU -11% yoy, -9% mom, due to 1) lower bunker fuel cost recovery; 2) declining core freight rates (Asia-Europe, Intra-Asia long-haul).

Drastic industry over-supply — Based on data from AXS-Alphaliner, 1.35mn TEU, or 11% of current global capacity, stood idle as at 2-Mar-09, +69% from a month ago of 800,000 TEU. Furthermore, new containerships amounting to 48% of existing capacity is scheduled to enter the market by 2012 – unless owners or yards default, cancel, or delay these orders.

More liners raise freight rates — Higher freight rates were announced in the past month (see Error! Reference source not found.) including hikes in Trans-Atlantic and Intra-Asia rates. We expect more rate hike announcements following the price leadership of major liners. However, we re-iterate that profitability is unlikely to return to the industry anytime soon: 1) idle fleet may be re-activated should volumes recover, capping any upside potential to freight rates, 2) laid-up fleet remains a drag on profitability; 3) newbuild fleet is a huge drain on industry cash flows.

Top Sell in Singapore — We expect NOL to report peak losses in 1H09 and a gradual recovery (i.e. lower quantum of losses) in 2H09E as cost-cutting measures take effect and over-supply eases (delayed deliveries, order cancellations, increased demolitions). Our S$0.90 TP is based on ~0.4x FY09E PB, a 20% discount to the support PB of ~0.5x found in past down-cycles.