By: Arif Habib Limited
Falling oil prices lift 2QFY15 earnings by 224% QoQ: Pakistan National Shipping Corporation (PNSC) announced its 1HFY15 results last week. The company posted consolidated earnings of PKR 793mn (EPS: PKR 6.0/share), up 8% YoY. The improvement was markedly visible during 2QFY15, with earnings up by 224% QoQ to PKR 4.59/share, while the improvement was 30% YoY compared to 2QFY14 attributable to rising margins, lower finance cost and lower effective tax rate.
Gross Profit margins expands to 21% in 2QFY15, up 630/310bps QoQ/YoY: Close scrutiny of 2QFY15 reveals – per our expectations – growth was majorly derived from falling crude, resulting in a slump (~40%) in shipping fuel prices. Thus, cost of sales dipped 11% QoQ, which resulted in gross profit expansion by 38%QoQ, lifting gross margins by 630bps to 21% during the period. However, admin expenses (up 17%QoQ) had a downwards impact on operating profits. Nonetheless, with finance costs falling by 85% during the quarter, PAT increased to PKR 606mn in 2QFY15 against 187mn in 1QFY15, reflecting earnings growth of 224%QoQ. The improved performance during the quarter compensated for a lackluster outcome of the preceding quarter, taking 1HFY15 earnings to PKR 6.0/share against PKR 5.6/share in same period last year.
Positive Sentiment on PNSC to continue: We retain our positive sentiment on PNSC on the back of 1) depressed oil prices in the short term 2) downwards impact on costs from the new vessel to be evident from 3QFY15 onwards and 3) expected volumetric increase in oil imports (PNSC accounting for roughly three fifths of oil imports transportation in Pakistan). Despite the Baltic Dry Index falling to new lows during 3QFY15TD, dry cargos (bulk commodities) accounted for 16.1% of revenues and we expect a slightly lower proportion for FY15, with a greater chunk of sales from oil transportation.