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Great Eastern Shipping’s (GE Shipping) Q3FY11 result
was below expectations. Q3 revenues were impacted by
lower operating days and freight rates. The
contribution of the offshore business to total revenues
increased to 32.6% against 27.2% last year. The
expected capex in Greatship (India), the offshore
subsidiary, is likely to drive revenues despite the
company withdrawing from its IPO. We maintain BUY
rating with a target price of Rs410.
Revenues decline on lower fleet and rates: GE
Shipping reported 17.8% lower than estimated
revenues in Q3 at Rs5,560mn; down 21.3% YoY and
11.9% QoQ. This was mainly due to the 30.7% YoY
decline in shipping revenues to Rs4,344mn on the back
of lower revenue days and freight rates. Offshore
revenues remained mixed with a 19.9% YoY growth to
Rs2,099mn but down 11.9% QoQ.
PAT up on other income: Operating profit at
Rs2,035mn though up 25.2% YoY was down 10.3%
QoQ and 35.9% lower than our estimate of Rs3,177mn.
Income from sale of ships (Rs551mn) and lower than
expected depreciation helped increase profitability.
PAT was up 24.5% YoY to Rs1,175mn but down 30.3%
QoQ and 16.0% below our estimates, while net margin
at 21.1% was in line with our expectation of 20.7%
SOTP valuation at Rs410; maintain Buy: We continue
to value GE Shipping on sum-of-the-parts (SOTP) basis
by assigning value to the shipping (Rs280) and offshore
businesses (Rs130) and arrived at a target price of
Rs410 on a consolidated basis.
Revenues decline on lower operating days and freight rates
GE Shipping reported lower-than-expected numbers in Q3 impacted by lower freight rates and
operating days. Consolidated revenue declined 21.3% YoY and 11.9% QoQ to Rs5,560mn, 17.8%
lower than estimated. This was mainly due to the 30.7% YoY decline in shipping revenues to
Rs4,344mn due to a mix of lower revenue days and lower freight rates. Shipping revenue days
declined 12.6% YoY to 2,974 days. The company scrapped three of its older vessels, which reduced
the total owned tonnage to 2.49mn dwt in Q3FY11 from 2.84mn dwt last year. Offshore revenues
remained mixed with a 19.9% YoY growth to Rs2,099mn but down 11.9% QoQ.
Operating profit at Rs2,035mn though up 25.2% YoY was down 10.3% QoQ and 35.9% lower than
our estimate of Rs3,177mn. EBITDA margins at 36.6% was flat QoQ and up 1,358bp YoY, but lower
than 46.9% estimated. Cost pressure across segments led to this contraction in margins. The
offshore business’ EBIT increased 28.0% YoY to Rs714mn though down 13.1% QoQ, while EBIT
margins in the segment remained flat at 34.0% from 31.9% last year.
Margins stable on sequential basis
GE Shipping’s EBIDTA margins improved 13.6 percentage points YoY but remained flat sequentially,
down just 63bp QoQ to 36.6%. The shipping segment’s EBIT was down 16.1% YoY and 12.3% QoQ to
Rs1,144mn, while margins contracted just 94bp QoQ to 26.3%. Shipping freight rates were fairly
stable sequentially and thus helped maintain margins.
The offshore segment’s profitability too remained flat sequentially, with EBIT falling 13.1% QoQ to
Rs714mn but margins declined just 48bp QoQ to34.0%.
Average TCY stable for dry bulk, lower for crude carriers
The average time charter yield (TCY) for GE Shipping remained stable for the dry bulk segment while
it declined in the crude carrier segment sequentially.
TCY in crude tanker segment was down 10.7% QoQ to $18,000 per day while it declined 9.4% QoQ in
the product segment (including gas carriers) to $15,351 per day.
It remained flat QoQ in the dry bulk segment, where TCY improved 1.6%QoQ to $20,141 per day as
the company was able to place smaller ships at better-than-market charter rates.
SOTP valuation at Rs410; maintain Buy
We continue to value GE Shipping on a sum-of-the-parts (SOTP) basis but roll forward our value to
FY13 to arrive at our target price of Rs410 on a consolidated basis.
We value GE’s shipping business by giving a 0.7x multiple to the FY13E standalone book value and
arrive at Rs280 per share. We value the offshore business based on a P/E multiple of 8.0x FY13E
earnings to arrive at a value of Rs130 per share.
Currently trading at 23% discount to standalone NAV
GE Shipping is currently trading at 22.7% discount to its NAV of Rs362 (as on 31st December 2010 on
a standalone basis and valuing the offshore business on book value). Historically, GE Shipping has
traded at an average discount of 28% to its NAV. But this has significantly reduced due to the higher
value ascribed to the offshore business in the price of the consolidated listed entity.
Estimates revised
GE Shipping is acquiring the drilling Jack-up rig it had in-charted from the owners during Q4FY11.
Though this will help improve margins, it will also increase interest and depreciation. We have cut
revenues by 4.2% and 3.9% for FY12 and FY13 respectively. EBITDA margin though improves in FY12
remains flat in FY13. However, accounting for higher interest and depreciation, PAT is lower by
10.9% in FY13. Effectively EPS is now lower by 0.8% for FY12 to Rs44.1 and 10.9% for FY13 at Rs45.2.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Great Eastern Shipping’s (GE Shipping) Q3FY11 result
was below expectations. Q3 revenues were impacted by
lower operating days and freight rates. The
contribution of the offshore business to total revenues
increased to 32.6% against 27.2% last year. The
expected capex in Greatship (India), the offshore
subsidiary, is likely to drive revenues despite the
company withdrawing from its IPO. We maintain BUY
rating with a target price of Rs410.
Revenues decline on lower fleet and rates: GE
Shipping reported 17.8% lower than estimated
revenues in Q3 at Rs5,560mn; down 21.3% YoY and
11.9% QoQ. This was mainly due to the 30.7% YoY
decline in shipping revenues to Rs4,344mn on the back
of lower revenue days and freight rates. Offshore
revenues remained mixed with a 19.9% YoY growth to
Rs2,099mn but down 11.9% QoQ.
PAT up on other income: Operating profit at
Rs2,035mn though up 25.2% YoY was down 10.3%
QoQ and 35.9% lower than our estimate of Rs3,177mn.
Income from sale of ships (Rs551mn) and lower than
expected depreciation helped increase profitability.
PAT was up 24.5% YoY to Rs1,175mn but down 30.3%
QoQ and 16.0% below our estimates, while net margin
at 21.1% was in line with our expectation of 20.7%
SOTP valuation at Rs410; maintain Buy: We continue
to value GE Shipping on sum-of-the-parts (SOTP) basis
by assigning value to the shipping (Rs280) and offshore
businesses (Rs130) and arrived at a target price of
Rs410 on a consolidated basis.
Revenues decline on lower operating days and freight rates
GE Shipping reported lower-than-expected numbers in Q3 impacted by lower freight rates and
operating days. Consolidated revenue declined 21.3% YoY and 11.9% QoQ to Rs5,560mn, 17.8%
lower than estimated. This was mainly due to the 30.7% YoY decline in shipping revenues to
Rs4,344mn due to a mix of lower revenue days and lower freight rates. Shipping revenue days
declined 12.6% YoY to 2,974 days. The company scrapped three of its older vessels, which reduced
the total owned tonnage to 2.49mn dwt in Q3FY11 from 2.84mn dwt last year. Offshore revenues
remained mixed with a 19.9% YoY growth to Rs2,099mn but down 11.9% QoQ.
Operating profit at Rs2,035mn though up 25.2% YoY was down 10.3% QoQ and 35.9% lower than
our estimate of Rs3,177mn. EBITDA margins at 36.6% was flat QoQ and up 1,358bp YoY, but lower
than 46.9% estimated. Cost pressure across segments led to this contraction in margins. The
offshore business’ EBIT increased 28.0% YoY to Rs714mn though down 13.1% QoQ, while EBIT
margins in the segment remained flat at 34.0% from 31.9% last year.
Margins stable on sequential basis
GE Shipping’s EBIDTA margins improved 13.6 percentage points YoY but remained flat sequentially,
down just 63bp QoQ to 36.6%. The shipping segment’s EBIT was down 16.1% YoY and 12.3% QoQ to
Rs1,144mn, while margins contracted just 94bp QoQ to 26.3%. Shipping freight rates were fairly
stable sequentially and thus helped maintain margins.
The offshore segment’s profitability too remained flat sequentially, with EBIT falling 13.1% QoQ to
Rs714mn but margins declined just 48bp QoQ to34.0%.
Average TCY stable for dry bulk, lower for crude carriers
The average time charter yield (TCY) for GE Shipping remained stable for the dry bulk segment while
it declined in the crude carrier segment sequentially.
TCY in crude tanker segment was down 10.7% QoQ to $18,000 per day while it declined 9.4% QoQ in
the product segment (including gas carriers) to $15,351 per day.
It remained flat QoQ in the dry bulk segment, where TCY improved 1.6%QoQ to $20,141 per day as
the company was able to place smaller ships at better-than-market charter rates.
SOTP valuation at Rs410; maintain Buy
We continue to value GE Shipping on a sum-of-the-parts (SOTP) basis but roll forward our value to
FY13 to arrive at our target price of Rs410 on a consolidated basis.
We value GE’s shipping business by giving a 0.7x multiple to the FY13E standalone book value and
arrive at Rs280 per share. We value the offshore business based on a P/E multiple of 8.0x FY13E
earnings to arrive at a value of Rs130 per share.
Currently trading at 23% discount to standalone NAV
GE Shipping is currently trading at 22.7% discount to its NAV of Rs362 (as on 31st December 2010 on
a standalone basis and valuing the offshore business on book value). Historically, GE Shipping has
traded at an average discount of 28% to its NAV. But this has significantly reduced due to the higher
value ascribed to the offshore business in the price of the consolidated listed entity.
Estimates revised
GE Shipping is acquiring the drilling Jack-up rig it had in-charted from the owners during Q4FY11.
Though this will help improve margins, it will also increase interest and depreciation. We have cut
revenues by 4.2% and 3.9% for FY12 and FY13 respectively. EBITDA margin though improves in FY12
remains flat in FY13. However, accounting for higher interest and depreciation, PAT is lower by
10.9% in FY13. Effectively EPS is now lower by 0.8% for FY12 to Rs44.1 and 10.9% for FY13 at Rs45.2.
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