Pakistan National Shipping Corporation (PSX: PNSC) is a national carrier of Pakistan. It is engaged in the transportation of dry bulk and liquid cargos across the globe. PNSC operates under the control of Ministry of Maritime Affairs, Government of Pakistan. The company manages a fleet of 12 ships with a carrying capacity of 938,876 tons of deadweight. Besides, PNSC also has a real estate business and a repair workshop.

Pattern of Shareholding

As of June 30, 2022, PNSC has a total of 132.063 million shares outstanding which are held by 16,374 shareholders. The government has the highest shareholding of 87.56 percent in PNSC. This is followed by general public holding 8.15 percent shares of PNSC. Associated companies, undertakings and related parties have a stake of around 1.6 percent in the company. The remaining shares are held by other categories of shareholders including NIT and ICP, Insurance Companies, Banks, DFIs and NBFIs etc., each having s share of under 1 percent in the company.

Historical Performance (2018-22)

Except for a downtick in 2021, the consolidated topline of PNSC has been growing considerably in all the years. 2022 appeared to be the best performing year where not only did the topline grew by 117 percent year-on-year, boasting the highest ever revenue, the bottomline expanded by 149 percent year-on-year culminating into a profit of Rs5650 million. The margins of PNSC that have been magnifying since 2018 showed a plunge in 2021 but gained back momentum in 2022. It is also to be noted that PNSC sustained the crucial year of 2020 when the local and global economy were equally hit-hard by the global pandemic and the business and trade activities came to a halt in the second and third quarters of FY20 due to lockdown and restrictions on the movement of goods and people in major part of the world. A review of the financial statements will disclose the fundamental details.

In 2020, PNSC boasted a year-on-year topline growth of 21 percent which came on the back of improved revenue from oil tankers that grew by 67 percent year-on-year. Bulk carriers, on the other hand, dropped by 14 percent year-on-year. The chartered segment also remained lackluster with a plunge of 53 percent year-on-year. Rental income remained buoyant and rebounded by 35 percent year-on-year during 2020. PNSC posted the highest GP margin of 33 percent in 2020 as against 27 percent in 2019 because of improved performance of tanker segment which forms the largest chunk of its sales mix. Despite a sizeable growth in the impairment loss on financial assets, PNSC was able to post the highest OP margin of 27 percent in 2020 as against 26 percent in the previous year as it kept a check on its administrative expenses and other expenses. A massive year-on-year growth of 152 percent in finance cost squeezed the NP margin to 17 percent in 2020 as against 19 percent in the previous year. High finance cost was the result of elevated discount rate in the first three quarters of 2020, however, the debt-to-equity ratio dropped to 17 percent in 2020 as against 22 percent in 2019.

2021 was characterized by an 11 percent year-on-year drop in sales revenue. 2021 presented a contrasting story when compared to the previous year. In 2021, oil tanker segment didn’t perform well and slid by 18 percent. This was on the account of fuel consumption across the globe owing to lockdown and related restrictions during the pandemic which adversely affected the road transport and aviation sectors. Bulk carriers and chartered segment significantly improved during the year, however, couldn’t offset the plunge in the oil tanker segment. Rental income also fell by 3 percent year-on-year, however, the company made a massive revenue from other operating activities specially demurrage income. The GP margin slid to 22 percent in 2021 from 33 percent in the previous year. PNSC tried to control its operating expenses and also booked a reversal on financial assets during the year as against the impairment loss in the previous year, yet operating profit dropped by 19 percent year-on-year with an OP margin of 23 percent. A significant drop in finance cost due to low discount rate and a drop in the debt-to-equity ratio to 16 percent buttressed the bottomline which although dipped by 6 percent year-on-year, yet culminated into a growth of 100 bps in the NP margin.

2022 was the most financially sound year for PNSC as its shipping, rental and other operating business, all boasted a massive jump. Within the shipping segment, oil tanker segment boasted a major 52 percent year-on-year growth in revenue while the foreign chartered segment grew by over 8 times to clock in at Rs7019 million. Other operating income also grew by over 6 times in 2022 on the back of demurrage income. The GP margin clocked in at 29 percent after witnessing a dip in the year. The company booked a massive impairment loss during the year especially on trade debts. Other expenses also grew by 95 percent year-on-year particularly on account of provision booked on slow moving stores and spares. However, other income performed well on account of high discount rate which boosted income from saving accounts and term deposits. Moreover, depreciation of Pak Rupee also resulted in sizeable exchange gain for the company. Hence OP margin grew to 25 percent in 2022. Finance cost also dropped despite high discount rate as the company is continuously curtailing its debt-to-equity ratio which now stands at 11 percent. The NP margin clocked in at 20 percent in 2022. This would’ve been much higher had the company not booked a massive impairment loss on its financial assets.

Recent Performance (1HFY23)

Following the growth trajectory of 2022, the company performed exceptionally well in the 1HFY23. The topline grew by 187 percent year-on-year during the period with an improvement in both shipping and rental business. The gross profit multiplied by over 4 times translating into a GP margin of 46 percent in 1HFY23 as against 24 percent during the same period last year. Growth in impairment loss on financial assets, administrative expenses and other expenses was absorbed by a handsome increase in other income resulting in a 6 times higher operating profit in 1HFY23 than 1HFY22. While the financial statements don’t show the breakup of other income, we can safely assume that the tall figure is the result of high income on deposits owing to high discount rate and massive exchange gain due to devaluation of Pak Rupee. Finance cost grew by over 160 percent owing to high discount rate and an increase of Rs4344 million for the induction of two oil tankers. The bottomline grew by 742 percent year-on-year in 1HFY23 culminating into a NP margin of 41 percent in 1HFY23 as against 14 percent during the same period last year.

Future Outlook

The addition of two tankers in 1HFY23 would increase the capacity of PNSC’s tanker business and result in greater revenue in the coming times. High impairment loss and financial expense can put brakes on the bottomline growth; however, other income will remain buoyant enough on the back of exchange gain and high return on deposits. This will keep the margins healthy.