By: Ahmed Lakhani, Arif Habib Limited
Pakistan National Shipping Corporation (PNSC) has risen to our expectations providing substantial return of 82% so far since Nov’14. We believe it is not the end of the story as there are hidden returns on account of: 1) plummeting fuel costs (down ~56% from Jul’14 highs of USD 626/ton, 2) impact of MT Shalamar to be seen from 3QFY15 onwards, and 3) diversification strategy.
Fuel costs moving south to result in windfall gains
Shipping fuel has dipped by ~56% since Jul’14 to ~USD 275-285/ton from highs of USD ~626/ton, resulting in our expectations of windfall gains for PNSC. Moreover, freight revenues are fixed on long term basis in Contracts of Affreightment, with annual revisions, due to which, the company is set to capitalize on dipping fuel costs. This should help boost company’s primary margins in the coming quarters.
MT Shalamar to make its mark from mid 3QFY15
The new Aframax, MT Shalamar, was inducted into the fleet in December last year, after which it ballasted (shipping parlance for sailing empty) from Singapore to Pakistan. Due to this, the true potential of an additional oil tanker should not be visible in 2QFY15. In 3QFY15, we expect that the ship will provide an upwards boost to earnings, with a resounding impact in the final quarter of the fiscal year.