Precious Shipping

Precious Shipping Plc (PSL)

 

Core loss in line with estimate

PSL reported a net loss of Bt1,513m, deeper YoY and QoQ. Stripping out a Bt5m gain on disposal of current investment, Bt279m loss on sales of vessels, Bt841m loss on impairment of assets, Bt6m bad debt expense and Bt25m FX loss, the 4Q15 core loss would be Bt410m, deeper both YoY and QoQ. While the core loss was in line with our forecast, the net loss was much deeper than estimate, due to extra expenses. 

Results highlights

The core operational weakness was led by: 1) a lower average freight rate, 2) higher SG&A expenses and 3) higher interest expenses. The average freight rate dropped by 26% YoY and 18% QoQ to US$5,950/day/ship. The SG&A/sales ratio rose to 10.5% from 3.5% in 4Q14 and 7.9% in 3Q15. In addition, the interest expenses increased by 39% YoY and 5% QoQ to Bt151m, due to higher loan outstanding. Note that the number of vessels increased to 45 in 4Q15 from 44 in 4Q14 (but remained unchanged QoQ). 

Outlook

The average BDI in 1Q16 to date has dropped 40% YoY and 42% QoQ to 370 points, led by a 52% plunge in the Capesize index followed by a 41% decrease in the Supramax index and a 34% contraction in the Handysize. The key reasons behind the weak BDI and freight rates were: 1) low seasonal demand during long Chinese New Year holidays and 2) sluggish global demand, particularly China, on the back of economic slowdown. As such, we expect PSL’s core operation to remain in red ink and weaken further both YoY and QoQ in 1Q16.  

What’s changed?

We deepened our FY16 net loss forecast to Bt613m from Bt432m to reflect a 4% downward revision in our average freight rate assumption to US$7,516/day/ship for 2016. As such, our revised our YE16 target price is now Bt6 (from Bt9.75), pegged to PBV of 0.6x—the valuation that the stock traded during the tough cycle. 

Recommendation

In our view, the prolonged weak dry bulk shipping market and the firm’s operational performance in 2016, to be brought about by weak global demand, will continue to put downward pressure on the share price going forward. However, we think the current share price which trades at a YE16 PBV of 0.5x—1.8SD below its long-term mean of 1.2x—has already priced this in.