Bahri’s Q4 misses estimate on lower tanker rates: Al Rajhi Cap

The National Shipping Company of Saudi Arabia’s (Bahri) Q4 2016 net profit of SAR 327.8 million was lower than Al Rajhi Capital’s estimate of SAR 385 million, the brokerage said in an earnings review on Monday.

The shipping firm’s Q4 income was also substantially lower than the consensus estimate of SAR 431 million.

The decline in net profit was attributed to lower tanker rates and higher bunker costs, which squeezed operating margins.

Meanwhile, Bahri’s Q4 2016 revenue came in at SAR 1.658 billion, lower than Al Rajhi Capital’s estimate of SAR1.771 million, with the difference mainly attributable to the very large crude carrier (VLCC) segment.

“Tanker rates have been in a downtrend in H2 2016 due to supply concerns – global VLCC fleet is expected to grow 4 percent in 2017 compared to oil demand growth of just 1.3 percent,” the report said.

Moreover, the rise in oil prices has reduced contango spreads, leading to a decline in floating storage requirements.

Bunker prices may also sustain at higher levels in 2017, due to higher oil prices post the OPEC and non-OPEC agreement to cut production last year.

“For now, we maintain our equal weighted (DCF and EV/E based relative valuation) target price of SAR 38.7 per share,” Al Rajhi Capital said, adding that it is revising its rating on Bahri to ‘underweight’ from ‘neutral,’ given a 12 percent downside from the current price.