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SCMP Reporter

Analysts have slashed 1996 and 1997 profit forecasts for Neptune Orient Lines, Singapore's state-controlled ocean shipping company, after the company said profit fell 28 per cent last year.

  Profit of S$45.1 million (about HK$247.1 million) and earnings per share of 6.5 cents in 1995 portrayed a company struggling with a robust local currency, rising borrowing costs, and keen sectoral competition, analysts said.

  David Leow, an analyst at Kay Hian James Capel, said: 'It is like a Monet painting drawn with a crayon. It is messy from a distance, and even messier up close.'   Neptune Orient, a government-linked company controlled by Temasek Holdings, an investment arm of the government, is a pillar of Singapore's shipping and transport industry. The company ships dry bulk cargoes, containers and petroleum.

  The 1995 profit and earnings per share were better than expected.

   Analysts said this was because of higher than forecast profit from the sale of vessels, not from the company's core shipping operations.

  'In fact, profits on ship sales formed 76 per cent of total earnings in 1995,' Mr Leow said. Profit from ship sales rose 43 per cent to $34.4 million.

  Like many shipping companies, Neptune Orient accounted for profits or losses from ship sales as recurring business.

  Mr Leow said that as a result of the lower results and a discouraging two-year outlook, he lowered his estimate of 1996 profit by 15 per cent to $38.2 million, and his estimate of 1997 profit by 17 per cent to $43.5 million.

  Foo Jou Min, director of research at Crosby Securities (Singapore), said she cut her 1996 profit estimate by 3.5 per cent to $40.3 million and 1997 by 17.5 per cent to $39.6 million.

  Ong Hui Guan, a marine analyst at Standard Chartered Securities Singapore, cut his forecasts by about 15 per cent, to $48 million in 1996, and $65 million in 1997.

  'The earliest we might expect a rebound in profits would be in late 1997 or early 1998,' as new vessels join the Neptune Orient fleet, Mr Ong said.

  The shipping company's stock, which has fallen 10.5 per cent during the past year while stocks on Singapore's main board have risen 13 per cent, traded unchanged yesterday at $1.54.

   Neptune Orient attributed the 1995 drop in profits to the strength of the Singapore dollar and higher borrowing costs.

  A stronger local dollar hurts the shipping company because it derives much of its revenue in US dollars, analysts said.

  'The key last year was the Singapore dollar's rise,' Sim Chey Hoon, an analyst at Merrill Lynch & Co in Singapore, said.

   Revenue rose 4 per cent in Singapore dollar terms but fell 3.6 per cent in US dollars.

  The Singapore dollar, underpinned by current account surpluses, strengthened by 7.3 per cent against the US dollar to an average S$1.416 last year from $1.527 in 1994. Neptune Orient's profit also fell because its container shipping business, which has historically accounted for about 75 per cent of profit, was growing faster than demand for its services, a trend across the industry.

  'Think of the shipping industry as a crowded room where the only way to move is by using your elbows,' Mr Leow said.

  Industry wide, container ship capacity on the key routes between Asia and Europe, and Asia and the United States, is growing about 10 per cent a year while demand is expanding by 7 per cent to 8 per cent.



Forecasts dip as Neptune profit falls