Precious Shipping: Navigating soft time charter rates
- 4Q22 earnings fell 69% y-o-y, 59% q-o-q to Bt549m on lower TC rate
- Final DPS of Bt0.25; implying 1.5% yield
- 1Q23F bottomline may turn red on softer rates but China recovery to support stronger demand and rates for FY23
- Maintain HOLD and Bt15.50 TP
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Weaker TC rate led to weaker performance in 4Q22: PSL posted a six-quarter low net profit in 4Q22 of Bt549m, plunging 69% y-o-y and declining 59% q-o-q. Stripping out extraordinary items, PSL’s normalised net profit stood at Bt594m in 4Q22, dropping 66% y-o-y and decreasing 55% q-o-q. The was better than our forecast on lower-than-expected cost but missed the street’s on lower-than-expected TC rate.
The weaker 4Q22 earnings was mainly on the back of lower revenue arising from a downtrend in TC rates that dropped to USD$14,343/day per ship (-46% y-o-y, -28% q-o-q), and higher SG&A to sales on the back of lower sales.
The company finished the year 2022 with a 14-year high net profit of Bt4,850m, which inched up 8% y-o-y, due to higher number of vessels of 38 ships and lower OPEX of US$4,895/day/ship (-4% y-o-y) from lower dry-docking and special survey expenses, while TC rate dipped slightly to US$19,924/day/ship (-2% y-o-y) in FY22.
The company’s net gearing ratio remained at a healthy level at 0.34x at end-4Q22 vs. 0.35x at end-3Q22 and 0.4x at end-4Q21.
To pay DPS of Bt0.25, implying 1.5% dividend yield. The company will pay an interim cash DPS of Bt0.25. The dividend will go XD on 21 April 2023 and is payable on 9 May 2023. This represents a 1.5% dividend yield at the current share price. Note that the company has already paid DPS of Bt1.50 earlier this year. As a result, this final dividend would bring DPS for FY22 up to Bt1.75, on par with FY21.
TC rate update
BDI, BSI, and BHSI still on a downward trend YTD, but was also due to seasonality. Dry bulk rates continued to trend down since the second half of 2022 on the back of weaker global economic outlook and amid higher interest rate trend. Nonetheless, we believe that YTD downtrend was also on the back of seasonality, and an early start to the Chinese New Year, but we expect freight rates to trend up again amid China reopening.
The BDI stood at 602 on 10 February 2023. Similarly, the BSI dropped to 628 while the BHSI stood at 436 for the same period which is hovering around 2019 and 2020 level.
1Q23F bottomline may turn red on softer rates… As the company’s fleets are Supramax and Handysize vessels, and the YTD TC rate is averaging around USD$8,000-9,000/day/ship for Supramax and USD$7,000-8,000/day/ship for Handysize, we expect PSL’s 1Q23F bottomline may turn slightly red for the first time since 3Q20, as these rates are slightly below the company’s breakeven point at c. USD$8,000-9,000/day/ship.
…but China recovery should support stronger demand and healthier rates for the rest of 2023. Though Clarksons has now projected 2023 ton-mile demand growth of 1.59% (based on January 2023 numbers), slower than supply growth of 2.4%, we expect that abandonment of zero COVID-policy in China, which plays a major role in the dry bulk market, will support ton-mile demand growth through improving trades amid country reopening, including improving global economic outlook for the rest of 2023. Additionally, Clarksons expects ton-mile demand growth at 2.02% to surpass supply in 2024 at 0.3%.
Note that the international Monetary Fund (IMF) just lifted its global growth projection to 2.9% in 2023 (vs. previous forecast at 2.7%) while growth in 2024 should accelerate slightly to 3.2%. Similarly, IMF revised China GDP growth to 5.2% for 2023 (from 4.4% previously).
Low order book and regulations should also keep rates healthy. The orderbook ratio still remains low at 7.16% of the world fleet at the beginning of 2023. Recycling should pick up in 2023 and we see slower new orders amid new regulations like EEXI and CII that become effective since early January 2023. These should help keeping rates at a healthy level.
Cut our FY23F/24F earnings by 7%/31% to factor in a more conservative TC rate assumption. By lowering TC rate assumption to US$13,752/day/ship in FY23F from US$14,815/day/ship, and to US$11,787/day/ship in FY24F from US$13,889/day/ship, we expect FY23F earnings at Bt2.3bn (-53% y-o-y) and FY24F at Bt1.5bn (-35% y-o-y).
Maintain HOLD with TP of Bt15.50. We continue to believe that dry bulk rates have peaked out as the market normalises. However, we expect TC rates to trend up after a weak YTD trend, and stand at a healthy rate above its breakeven point. Coupled improving outlook in China amid country reopening, low orderbook ratio, and with decent dividend yields of 6% for FY23F-24F based on a conservative DPS assumption of Bt1.0, we maintain our HOLD recommendation with TP of Bt15.50, pegged to 1.4x FY23F BVPS.
FY Dec | 4Q2021 | 3Q2022 | 4Q2022 | % chg yoy | % chg qoq |
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Revenue | 2,812 | 2,500 | 1,732 | (38.4) | (30.7) |
Cost of Goods Sold | (500) | (630) | (520) | 4.2 | (17.4) |
Gross Profit | 2,313 | 1,870 | 1,211 | (47.6) | (35.2) |
Other Oper. (Exp)/Inc | (170) | (118) | (151) | (11.4) | 27.7 |
Operating Profit | 1,831 | 1,394 | 709 | (61.3) | (49.1) |
Other Non Opg (Exp)/Inc | 0.92 | 1.70 | 10.9 | 1,081.3 | 540.3 |
Associates & JV Inc | 8.22 | 10.2 | 10.5 | 27.4 | 2.9 |
Net Interest (Exp)/Inc | (78.0) | (107) | (109) | (39.9) | (2.4) |
Exceptional Gain/(Loss) | 8.85 | 37.6 | (44.6) | - | (218.7) |
Pre-tax Profit | 1,772 | 1,339 | 576 | (67.5) | (57.0) |
Tax | 0.53 | 9.40 | (26.5) | (5,111.7) | (382.0) |
Minority Interest | 0.0 | 0.0 | 0.0 | 89.1 | (92.7) |
Net Profit | 1,772 | 1,348 | 549 | (69.0) | (59.3) |
Net profit bef Except. | 1,763 | 1,310 | 594 | (66.3) | (54.7) |
EBITDA | 2,152 | 1,765 | 1,081 | (49.8) | (38.8) |
Margins (%) |
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Gross Margins | 82.2 | 74.8 | 70.0 |
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Opg Profit Margins | 65.1 | 55.8 | 40.9 |
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Net Profit Margins | 63.0 | 53.9 | 31.7 |
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