SINGAPORE (Jan 19): DBS Vickers has upgraded Neptune Orient Lines to "buy" from "hold" and raised its price target from 88 cents to $1.10, pegged at parity to projected 2015 book value.

NOL could be in for "better luck" this year as prices of bunker fuel have fallen from US$600 per metric tonne to less than US$300 in slightly more than six months, according to DBS Vickers analyst Suvro Sarkar.

"Given that NOL’s liner business consumes about three million metric tonnes of bunker fuel per year, this implies significant cost savings," he wrote in a note.

While part of the fuel-price decline will be passed through to customers, "the fact that NOL has lagged its peers in terms of fuel efficiency and margins in the past means there is more room for improvement, given the razor thin margins involved", he said.

Against this backdrop, DBS Vickers has increased its 2015 earnings estimate for NOL to US$203 million from US$46 million.

Business for NOL is also likely to pick up as the transpacific route, from where it gets almost half of its liner revenue, gets busier, according to Sarkar.

"While industry freight rates will likely continue to be volatile in 2015, the Transpacific route could hold up better than the Asia-Europe lane, with US economic growth expected to be steady and consumer demand potentially getting a fillip from lower gasoline prices."

NOL shares rose 0.5% to 95.5 cents at 10:44am (0244 GMT).