DBS Vickers upgraded container shipping firm Neptune Orient Lines (NOL) to hold from fully valued and raised its target price to S$1.23 from S$1.00, citing a stabilising outlook.

NOL shares were down 2.1 percent at S$1.15 on Friday. The stock has gained around 2 percent so far this year versus the nearly 15 percent gain in the broader Straits Times Index .

NOL results are set to improve in the second quarter, driven by higher freight rates, lower bunker fuel prices and cost-saving initiatives, DBS said, though it warned that the risk of a gradual decline in rates remains amid benign demand currently.

"The unfavourable containership demand-supply mismatch continues to pressure rates, but we are looking for a gradual slide downwards in 2H12 (the second half of 2012) at worst, unlike the sharp fall last year," DBS said.

1216 (0416 GMT)

(Reporting by Eveline Danubrata in Singapore; eveline.danubrata@thomsonreuters.com)