Tough Business Conditions - NOL, Vard Holdings

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NOL (Shipping & Logistics Chain)
NOL reported a US$76 million profit on the back of the sale of its NOL headquarters building. Without the gains from the sale, it would still be in the red with EBIT at -US$85 million. The company has been having a very tough 2-3 years due to supply glut of liner vessels putting pressure on shipping rates but it seems that with a new CEO and leadership team, the cost cutting measures have become more aligned and aggressive to unlock value for shareholders in these tough times. For both liner and logistics, core EBIT losses have been narrowed and it is now in a stronger cash position after tapping new loans and increasing investment in PPE with cash from its sale of the building. Having said these, its performance is still highly correlated with shipping rates where there still seems no end to the oversupply of vessels. Europe and US are still in the doldrums and economic trade has not improved much compared to 2012.

• Black candlesticks for the last 5 weeks of trading. Share price has been plunging since the start of 2013 until a strong resistance at $1.10.
• MACD - seems to be turning upwards weakly.
• RSI (25w) - still downtrended
• Chance of technical break on narrowing losses - $1.18 (8% from current levels) Chances are traders will take this chance to buy at a low/major resistance and attempt a short term trade on NOL. Given that prices have been sliding since the start of the year, this announcement today may give some relief to the selling pressure. 

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VARD (Shipbuilder,Offshore Services Company)
Previously known as STXOSV, Vard has had its share prices fall since Oct 2012 after poor quarterly results in Nov and a price offer for shares by Fincantieri at $1.22/share. Vard had secured new contracts for 3 OSCVs worth some 3 NOK million in the first quarter, one of the slowest start since 2009. Delivering only 5 out of its 24 vessels scheduled for delivery this year, EBITDA has fallen some 23% in 1Q2013. Cash position has also dipped to 2 NOK billion from 3 NOK billion in March 2012.

• Share price slide since Oct 2012 with little indication that there will be a reversal in trend. 
• MACD - is negative but with some chance of turning upwards.
• RSI (25w) - trending downwards towards 30%. 
• Bad news and bad technical chart - $0.90 (-15% from current levels). It does seem that investor interest in this stock has been waning since 2011 when its prices were on a one way trajectory. Oct 2012 has marked the start of its share decline and so far there is still no good news to send its prices up. Bad news, bad technicals. Go short.

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Weekly Update - NOL, Yangzijiang, Swiber

Current Market Theme:
Favour oil & gas counters with solid order books for the current market recovery. Expect more new deals in the pipeline given the lifting outlook with emerging economies such as Latin America where oil exploration has always been key.

Also favour shipping companies given recent China's recovery and improved export data. Reports suggest that China may overtake US in economic leadership by 2014 so good news in China is good news for world trade. Europe and US are in a period of trade stagnation but no major shocks to be expected.

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1. Neptune Orient Lines (Shipping)

• Breakout in this week with high volume sending stock to a price of $1.31.
• MACD - positive divergence and trending into the positive
• RSI (25w) - crossed 50% and headed for 70%
• Price Target - $1.44 (~11% from current levels) over the next 3-4 weeks.

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2. Yangzijiang (Shipping and Oil & Gas)
The market has been viewing company's decision to enter into the Oil & Gas competition favourably. Bagging its first deal at a much lower revenue (and possibly profit margin) than a similar rig done by Keppel Corp, this is a significant milestone for the company and yet it speaks volumes about the intense competition and journey ahead. Kudos nonetheless to the management for diverting underutilised resources away from ship building to rig building.

• Breakout in this week with high volume sending stock to a price of $1.115.
• MACD - positive divergence and trending into the positive
• RSI (25w) - crossed 50% and headed for 70%
• Price Target - $1.32 (~19% from current levels) over the next 4 weeks.

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3. Swiber (Oil & Gas)

• Continuation of upward trend with increased trading volume this week.
• MACD - positive divergence and trending in the positive
• RSI (25w) - crossed 50% and headed for 70%
• Price Target - $0.71 (~8% from current levels) over the next 2 weeks.

The Shipping Conundrum - NOL

Today, NOL, on the back of a 2.75% day rise, had been removed as a component of the STI and replaced with the newly SGX-listed IHH trust. Changes will take effect on 24th Sept.

The news for shipping counters really just gets worse and worse, doesn't it? In the public focus is China's slowdown where the biggest hit industry has to be that of commodities. After all, when the biggest importer of goods starts to consume less, the first hit will be raw materials and food that has been fueling its meteoric rise in the last decade. And with Europe in deadlock, and US import/export imbalance swaying without much consensus, it is no wonder that the next most correlated industry - shipping - will also bear the brunt of this economic tide.

However so, it is both good and bad news that shipping industry has been battered since 2008 owing to a supply glut, much far ahead in time than last quarter's China hard/soft-landing quibble. In fact, prices of NOL, Cosco, Yangzijiang seemed so floored that China and US slow down in the last quarter almost failed to decrease its stock prices much further. 

Now, with investors coming in to buy on the cheap, as some people have started to buzz about, shipping counters are soon to be in the spotlight again as the 'cheap buy'. 

Is it really the cheap buy?

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Midweek Stocks in Focus - NOL, Cosco, Rotary

It's been a really volatile week with the US, HK and UK markets surging to local highs while the STI maintained steady at 3020. Alas, it broke 3020 today with good strength exhibited throughout the day to close at 3051. This is the highest level since 1 year back and it seems like the 3020 psychological barrier is finally broken. Expect more upside to come (and also some retest of the 3020 resistance-turned support).

In the meantime, the usual market rally components are my favourite picks - Oil & Gas, Commodities and Shipping. In this first part of the article, I will focus on NOL, Cosco and Rotary while the 2nd part of my article will focus on Wilmar, Noble Group and Sakari.

NOL is a Government-linked-Company (GLC) with a strong presence in the shipping industry through its APL shipping and logistics networks. It has been in malaise for the last year with its stock price firmly in the ~$1 region. 

Outlook - Watch for break above $1.17 then buy for high stock beta in preparation for more market upside. Stock has seen 3 consecutive days of white candlesticks with accompanying good volume. Over the last 2-3 months stock prices have stabilised at a possible low suggesting that the worst is over and this is really the bottom of its malaise. Perhaps time for better fortune with easing European outlook and that prices are overdone on the downside.

• MACD - MACD crossed over signal line today and in the positive momentum region. First good sign.
• RSI (25d) - Crossed 50% and heading up.
• Bollinger Bands - Price is surging towards the upper bollinger band with some uncertainty to increased volatility/upwards price movement surge beyond $1.17.
• 20d MA - Prices have crossed the 20d MA yesterday
• 200d MA - Prices are still below the 200d MA with some more room to conquer.
• $1.17 resistance - An important note is the $1.17 resistance line that acted as a strong resistance in the short rally NOL experienced between May and June. Prices are now close to it and challenging it in the next few days. 
• Volume - Steady volume.

Cosco is one of the biggest companies in the world dealing with the shipping industry. It operates liner services, ship repair, building and offshore marine engineering. 

Outlook - Buy. With recently reported quarter earnings dipping 13.3% largely due to continued capacity surplus and weak demand in the shipping sector but a stabilisation in stock price, there seems to be a consensus in the market this is really the worst shipping can get. 

• MACD - MACD is about to cross over its signal line in the next few days.
• RSI (25d) - Still facing some resistance at 50% and possibly challenging it over the next few days with more upward movement.
• Bollinger Bands - Bands seem to be widening somewhat and prices have just rebounded off the lower bollinger band.
• 20d MA - Prices are still under the 20d MA with some intention of crossing it soon.
• 200d MA - Prices are still below the 200d MA with some room to conquer.
• Support diagonal - Most importantly, the risk-to-reward ratio is fairly tempting for this counter right now. Prices are close to the major support diagonal.
• Volume - Steady volume.

Rotary engineering is an Oil & Gas company involved mainly in Asia and Australia. 

Outlook - Buy. After a huge selldown since its peak in March, its prices have already risen by 5% from June lows. Though less attractive apparently compared to its counterparts in the Oil & Gas business, Rotary has a strong history of good management and that this selldown presents a good valuation to grab this stock on a cheap. Technically, there was a gap up on open today from the previous day in a rare situation. Good buying pressure is coming back together with the STI breaking through 3020. 

• MACD - MACD is about to cross over its signal line in the next few days.
• RSI (25d) - Challenging the 50% level tomorrow and headed upwards.
• Bollinger Bands - Bands are wide and can still accomodate a 5.2% upside on current prices to the upper bollinger band.
• 20d MA - Prices are justl under the 20d MA with intention of crossing it soon.
• 200d MA - Prices are still below the 200d MA with good room to conquer.
• Volume - Small volume today with the gap up.

Weekly Stock Picks - STXOSV, NOL

Hot oil & gas play STXOSV has a $2 fair value suggested by OCBC research. It is currently trading downbeat though at $1.4, possibly presenting a 42% upside. Still fresh from takeover bid news that has been linking them with several key players in the market since end 2011, the stock had seen a doubling of its share price since October low last year to $1.8 in April before falling to $1.4. 

Outlook - Track closely for direction in the first trading day of the week. A cross below the 200d MA will fit in nicely with MACD and RSI suggestions of further downside. A rebound will suggest some strength in the stock reaching a local low. Chances of further downside however is definitely more likely in this supposed bear week to come.

• MACD - Is trending downwards quite heavily.
• RSI (25d) - Is also heading downwards but with some resistance at around 38% level. 
• Bollinger Bands - Prices are now falling along the lower bollinger bands with some suggestion of a rebound. However, it is noted that the prices have been walking along the lower bollinger band for the last 5 days without a rebound in sight.
• 200d MA - Prices are now supported by 200d MA. A further downside cross will spell greater possible selling pressure that will drive prices even lower.

Similar to the Yangzijiang post discussed 1 week earlier on this blog, shipping companies such as NOL, YZJ, Cosco have been in malaise ever since 2008. Baltic dry index has been oscillating around 1000 levels which is a really low level given supply glut and poor demand on economic concerns. The good news here is that shipping companies are trading at very very low prices already factored into account right now. 

Outlook - Buy on the consensus that it is in for a long investment period. Right now there is nothing to suggest that the stock may go any lower than 2011 lows unless incredible mayhem strikes Europe. Very well  defined major resistance floor for NOL prices.

• MACD - Still trending downwards but with some glimpses that there might be an increase in investors sentiments to come.
• RSI (25w) - RSI still at lower half of the territory.
• Bollinger bands - Prices are at the lower bollinger band giving rise to a greater likelihood of a rebound off the $1 resistance floor.
• $1 resistance floor - Very well defined resistance floor observed in NOL prices. 

NOL Has Successfully Passed Its Test

NOL has been looking to break beyond $1.45 since last week only to meet strong resistance from the market at that levels. After all, it did seem a bit overbought and has encountered strong headwinds.

However, today NOL looked to have staged a breakout this morning before retreating to test the support for the first time. It has broken out of a ascending triangle pattern. It is still at $1.49, a very healthy price. More upside seems very possible! A little caution though given the MACD has been sloping downwards since last week and has gone under the signal line. But that should prove less significant in disrupting this further uptrend.

Fundamentally, NOL has risen 26% since the start of the year compared to counterparts Cosco and Yangzijiang that have risen 41% and 38% respectively (Source:SGX). I fully expect the value of NOL to tumble up now given the breaking of the resistance to match the maritime levels. Furthermore, the easing economic conditions will prove to be the year for shipping counters as US is expected to grow slightly, leading Europe out of the doldrums. Again, we know we are not without headwinds coming from the slowdown in China and South America emerging markets. So if your time horizon is between 0.5 to 1-1.5 years, I would suggest taking a closer look at this shipping giant based in Singapore.