GE SHIPPING
PRICE: RS.230 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.300 FY13E P/E: 8.8X
Subdued operational performance
Weak shipping market (especially tanker market), rupee depreciation, high
bunker and insurance cost, and depleted shipping fleet resulted in GESCO
reporting subdued net profit of Rs 275 million for the quarter decreasing
more than 75% QoQ and even YoY. Weak performance was reported by the
tanker and the product segment in the quarter. Even the bulk segment
continues to be weak which is reflected in the Time Charter Equivalent (TCE)
figures. Over supply of ships continues to put pressure on the freight rates
affecting the performance of most of the ship-owners including GESCO.
However the offshore subsidiary Greatship India Ltd (GIL) has shown
healthy performance and has contributed almost 90% of the earnings and
40% of the revenues for the company. We are cautious on the shipping
business and believe that GIL would be the key earnings driver for the
company in near term. We are reducing the target price by 5% to reflect the
fall in shipping asset prices by 5 to 10 % in the last 4 months. We reiterate
Accumulate on the stock with a reduced TP of Rs 300 for the stock.
n Consolidated revenues was reported at Rs 6.8 bn increasing ~22% YoY and ~
9% QoQ amidst weak shipping market globally. The revenues were primarily
driven by strong performance of the offshore subsidiary which has contributed
almost 40% of the revenues
n The offshore segment reported revenue of Rs 2.7 bn mn growing ~10% YoY
n Conolidated EBITDA was at Rs 2.7 bn translating into EBIDTA margin of ~40%
n The Shipping division reported an EBIT margin of ~12% and offshore division
reported an EBIT margin of ~45%.
n Interest component has gone up significantly from Rs 735 million in the previous
quarter to Rs 1373 million in the current quarter primarily due to rupee depreciation.
The debt for the company has gone up from Rs 56 bn in the previous quarter
to Rs 63 bn in the current quarter.
n As a result the adjusted net profit of the company was reported at Rs 275 million
decreasing more than 75% QoQ and even YoY.
Tough phase for shipping business continues - Supply side pressure
continues
In the dry market, the BDI still struggles to surpass the 1,500 points level mark with
weak expectations for the forthcoming days. Even the tanker market in the quarter
was very soft with oversupply of ships and minimum tonnage available. We are not
bullish on the shipping business going forward primarily due to over supply of ships in
the bulk segment (net supply of 7.0% per annum) and even in the tanker segment
(net supply of 3.2% per annum) over CY11E to CY14E.
Current shipping fleet of GESCO
Category Nos Avg Average (yrs)
Crude Carriers 8 10.0
Product Carriers 16 9.0
Gas Carrier 1 21.0
Tankers total 25 9.0
Capesize 1 15.0
Kamsarmax 3 0.0
Panamax 1 16.0
Supramax 4 5.8
Handymax 1 14.0
DryBulk total 10 9.0
Total 35 9.5
Source: Company
The company currently has a fleet of 35 ships aggregating 2.61 mn dwt. In FY12 till
date, the company took delivery of 2 Kasramax (each of 81,000 dwt) and a
Supramax of 57,000 dwt. The company also sold a very old tanker Jag Lakshya
1989 built having a capacity of 152,000 dwt. Unfortunately the company had cancelled
a new build order of 3 VLCCs, deliveries for which were scheduled in FY12
and FY13. This was primarily due to poor market conditions and poor shipping
market outlook. If we observe the trend for the last 3 years - the company has been
net seller of ships in the market.Under current circumstance where the shipping
market is estimated to remain weak atleast for the next two years, we expect
GESCO to resist from adding ships to its fleet - which is a prudent measure as many
ships currently are burning cash. We expect GESCO to focus more on the offshore
subsidiary.
Valuation and recommendation
We like GESCO's strategy of discarding old and single hull vessels judiciously which
enabled it to realize substantially greater asset price, which multiplied its profit generating
potential over years. The balance sheet position of the company is also very
healthy with current net debt to equity at a comfortable 1.0 x. With oil price above
$100 per barrel, the offshore segment (GIL) is expected to add significant value to
the consolidated entity. Company is making significant capex of $450mn for GIL
over FY11-FY13E. Historically GESCO has traded at a discount of 30% to its Net
Asset Value or Asset Replacement Cost. Using NAV (40% discount - assigning
higher discount) we assign a value of Rs 190/ per share for the shipping business.
While we value the subsidiary at 6 x FY12 EV/EBIDTA in line with valuation of global
offshore majors. It comes to around Rs 110 per share. We re-iterate Accumulate
rating on GESCO with a reduced price target of Rs 300. We expect the poor performance
of the shipping business would be partially compensated by the robust performance
of the offshore segment (GIL).
PRICE: RS.230 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.300 FY13E P/E: 8.8X
Subdued operational performance
Weak shipping market (especially tanker market), rupee depreciation, high
bunker and insurance cost, and depleted shipping fleet resulted in GESCO
reporting subdued net profit of Rs 275 million for the quarter decreasing
more than 75% QoQ and even YoY. Weak performance was reported by the
tanker and the product segment in the quarter. Even the bulk segment
continues to be weak which is reflected in the Time Charter Equivalent (TCE)
figures. Over supply of ships continues to put pressure on the freight rates
affecting the performance of most of the ship-owners including GESCO.
However the offshore subsidiary Greatship India Ltd (GIL) has shown
healthy performance and has contributed almost 90% of the earnings and
40% of the revenues for the company. We are cautious on the shipping
business and believe that GIL would be the key earnings driver for the
company in near term. We are reducing the target price by 5% to reflect the
fall in shipping asset prices by 5 to 10 % in the last 4 months. We reiterate
Accumulate on the stock with a reduced TP of Rs 300 for the stock.
n Consolidated revenues was reported at Rs 6.8 bn increasing ~22% YoY and ~
9% QoQ amidst weak shipping market globally. The revenues were primarily
driven by strong performance of the offshore subsidiary which has contributed
almost 40% of the revenues
n The offshore segment reported revenue of Rs 2.7 bn mn growing ~10% YoY
n Conolidated EBITDA was at Rs 2.7 bn translating into EBIDTA margin of ~40%
n The Shipping division reported an EBIT margin of ~12% and offshore division
reported an EBIT margin of ~45%.
n Interest component has gone up significantly from Rs 735 million in the previous
quarter to Rs 1373 million in the current quarter primarily due to rupee depreciation.
The debt for the company has gone up from Rs 56 bn in the previous quarter
to Rs 63 bn in the current quarter.
n As a result the adjusted net profit of the company was reported at Rs 275 million
decreasing more than 75% QoQ and even YoY.
Tough phase for shipping business continues - Supply side pressure
continues
In the dry market, the BDI still struggles to surpass the 1,500 points level mark with
weak expectations for the forthcoming days. Even the tanker market in the quarter
was very soft with oversupply of ships and minimum tonnage available. We are not
bullish on the shipping business going forward primarily due to over supply of ships in
the bulk segment (net supply of 7.0% per annum) and even in the tanker segment
(net supply of 3.2% per annum) over CY11E to CY14E.
Current shipping fleet of GESCO
Category Nos Avg Average (yrs)
Crude Carriers 8 10.0
Product Carriers 16 9.0
Gas Carrier 1 21.0
Tankers total 25 9.0
Capesize 1 15.0
Kamsarmax 3 0.0
Panamax 1 16.0
Supramax 4 5.8
Handymax 1 14.0
DryBulk total 10 9.0
Total 35 9.5
Source: Company
The company currently has a fleet of 35 ships aggregating 2.61 mn dwt. In FY12 till
date, the company took delivery of 2 Kasramax (each of 81,000 dwt) and a
Supramax of 57,000 dwt. The company also sold a very old tanker Jag Lakshya
1989 built having a capacity of 152,000 dwt. Unfortunately the company had cancelled
a new build order of 3 VLCCs, deliveries for which were scheduled in FY12
and FY13. This was primarily due to poor market conditions and poor shipping
market outlook. If we observe the trend for the last 3 years - the company has been
net seller of ships in the market.Under current circumstance where the shipping
market is estimated to remain weak atleast for the next two years, we expect
GESCO to resist from adding ships to its fleet - which is a prudent measure as many
ships currently are burning cash. We expect GESCO to focus more on the offshore
subsidiary.
Valuation and recommendation
We like GESCO's strategy of discarding old and single hull vessels judiciously which
enabled it to realize substantially greater asset price, which multiplied its profit generating
potential over years. The balance sheet position of the company is also very
healthy with current net debt to equity at a comfortable 1.0 x. With oil price above
$100 per barrel, the offshore segment (GIL) is expected to add significant value to
the consolidated entity. Company is making significant capex of $450mn for GIL
over FY11-FY13E. Historically GESCO has traded at a discount of 30% to its Net
Asset Value or Asset Replacement Cost. Using NAV (40% discount - assigning
higher discount) we assign a value of Rs 190/ per share for the shipping business.
While we value the subsidiary at 6 x FY12 EV/EBIDTA in line with valuation of global
offshore majors. It comes to around Rs 110 per share. We re-iterate Accumulate
rating on GESCO with a reduced price target of Rs 300. We expect the poor performance
of the shipping business would be partially compensated by the robust performance
of the offshore segment (GIL).
No comments:
Post a Comment