>GREAT EASTERN SHIPPING CO. LTD. (PINC RESEARCH)

G E Shipping's (GES) stand-alone results for Q4FY09 were below expectations due to an impairment loss of Rs700mn. Net sales declined by 24% to Rs5.6bn on back of lower revenue
days. OPM contracted 550bps YoY to 47.3% while expanding by 400bps sequentially. Adj. net profits dipped 67% to Rs1.1bn.

Reduced tonnage and rates depress revenues
Revenue days for the quarter declined by 18% on account of reduced tonnage. This coupled with depressed dayrates led to fall in revenues which was buffered to some extent by a stronger dollar.

Lower TCY & higher maintenance costs impact OPM
TCY declined across all asset classes while dry docking expenses increased 56%. Also, direct operating costs remained constant. This led to operating profits falling by 32% to Rs2.7bn & OPM contracting by 550bps to 47.3%.

Lower other income & impairment loss impact net profits
Other income contracted by 23% and GES took a Rs700mn impairment loss on one of its bulk carrier resulting in net profits declining by 67% to Rs1.1bn.

Fleet Details & Capex:
GES currently owns & operates 39 ships comprising 31 tankers (12 crude tankers, 18 product tankers, 1 LPG carrier) and 8 bulk carriers with an avg age of 10.3 yrs aggregating 2.9mnDWT. It also operates 5 in-chartered vessels. The offshore division GIL owns 5 PSVs & 5 AHTSVs and operates 3 in-chartered assets. 2 bulk carriers and 1 product tankers should leave the fleet by Q1FY10 as they have already been sold off. Further capex entails delivery of 26 assets with an outlay of Rs1.3bn over the next 3 years.

VALUATIONS AND RECOMMENDATION
Based on SOTP valuations incorporating the decline in tanker asset prices, we believe the stock is fairly valued and has achieved our target price. Accordingly we downgrade our recommendation to ‘HOLD’ with a revised target price of Rs270.

FY09 Performance
On a consolidated basis, revenues increased by 22% to Rs3.8bn mainly on account of a weak rupee, higher TCY and increased spot market exposure. Crude tankers TCY rose 37% while dry bulk TCY rose 4%. Rupee depreciation impacted the revenues by ~10%. Operating profits grew by only 14% as higher spot exposure led to margin deterioration. Better earnings in H1FY09 and increased offshore earnings help offset the sharp decline in TCY in the second half. Subsequently, OPM contracted by 280bps to 41%. GES accounted for a Rs700mn impairment loss on one of its bulk carriers which impacted the adj. net profits that grew by 9% to Rs14.2bn as against our estimates of Rs14.9bn. In FY09, GES took delivery of 2 product tankers, 2 AHTSVs, 2 PSVs & 1 Jack-Up Rig (In-chartered from Mercator Lines). During the same period, 3 product tankers, 5 bulk carriers and 1 gas carrier were sold off. Going forward, it has already inducted 1 product tanker and 1 AHTSV in Q1FY10. Further capex entails deliveries of 9 ships mainly in FY11& FY12 and 17 offshore assets by FY11 (10 in FY10 & 7 in FY11). The total outlay for aforesaid would be ~USD1.3bn (Shipping ~USD550mn & Offshore ~730mn).

To see full report: GE SHIPPING