By: Arif Habib Limited
Pakistan National Shipping Corporation (PNSC)’s financial results for 3QFY15/9MFY15, which were announced on 28-Apr-15, showed a lackluster performance by the company during the penultimate quarter of FY15. Earnings clocked in at PKR 1.96/share, down by 57% QoQ, while for the 9M period, earnings fell 23% YoY to PKR 7.96/share. As a result, the scrip underwent downwards plunge of 23% since 3Q results to date. Despite the recent setbacks for the company, we maintain our bullish stance on the scrip due to continued government support, coupled with increased oil imports in a lower oil price era.
Dissecting the numbers: Although sales fell 5% QoQ, gross margins during 3Q improved by ~130bps to 22%, in the wake of lower fuel prices and larger owned fleet capacity post acquisition of M/T Shalamar. The company managed to control overheads as admin expenses fell 30% during 3Q. Finance costs rose massively due to the new acquisition and had an adverse after-tax earnings impact of PKR 1.1/share. For 9M period, sales remained stagnant, with negligible change YoY. However, a firmer oil tanker market had an upwards impact on chartering costs, reducing margins by ~150bps for the 9M period, compared to last year.
PSO rift did not help either: The ensuing power struggle with Pakistan State Oil also had a dampener on PNSC’s future earnings expectations. According to media sources, PSO has requested that due to delays on the ships that PNSC charters for its PSO business, the oil marketing giant should be allowed to use C&F contract with its clients, i.e. procure transportation contracts directly from the seller, when PNSC doesn’t have a ship available. This further created bearish sentiment for the scrip, causing it to decline rapidly.