Mitsui OSK Lines (MOL), NYK Line and K Line all face a long and gradual road to improved profitability, an industry analyst has claimed.
The fate of all three large rests on the fortunes of container line joint venture Ocean Network Express (ONE) Bloomberg transport analyst Rahul Kapoor said.
MOL’s earnings growth is expected to outpace those of K Line and NYK despite the risks from slowing shipping demand growth.
“We expect a fiscal second half recovery in the dry-bulk and tanker segments, which could provide an earnings boost, while losses at its container segment are expected to recover further,” said Kapoor.
“A sharp recovery in container profitability is unlikely and significant improvements in overall group earnings hinge on realising targeted integration synergies and cost savings from ONE.”
He added: “Favourable tanker market conditions in the second half of the year could drive further improvement in its energy transport unit, while increasing investments in LNG and LPG will provide stable profit contributions in the long term.”
In addition, Kapoor says MOL’s recent acquisition of six VLECs will also help provide a sustainable long-term earnings contribution.
MOL said it expects to post revenue for the current fiscal year of ¥1.19 trillion, with net income of about ¥40bn.
NYK has the largest shareholding of the trio in ONE, at about 38%, so any recovery of the boxship joint venture could significantly boost NYK’s bottom line.
Management expects lower revenue of ¥1.73bn in the current fiscal year, while net income is expected to be about ¥26bn.
K Line may report a “slim profit” this year, but any earnings rebound is likely to occur at a “muted pace” despite the ongoing operational recovery at ONE.
“A strong operating profit recovery in the near term is unlikely, we believe, and remains contingent on ONE achieving targeted cost rationalisation,” said Kapoor.
“K Line’s significant exposure to the container business means it depends on a stronger income contribution from ONE to boost its bottom line. However, with much of the loss provisions behind it, a likely dry-bulk recovery in the fiscal second half of the year should also help relieve pressure on profitability.”
K Line said it expects lower revenue in the current fiscal year at ¥760bn and said it expects to return to profitability with a net income of ¥11bn.
