PSSI - 9M23

Feeling Under the Weather

Earnings Update 9M23

Despite a decline in revenues attributed to lower freight volume, the company experienced a marginal increase in its bottom line, largely attributable to gains generated from the sale of vessels in the first nine months of FY23. During this period, the company strategically downsized its fleet by selling a number of vessels, resulting in a considerable infusion of cash. Considering these recent financial shifts, we have recalibrated the valuation, leading to a downward revision of the target price. Moving forward, the Company is anticipated to confront several challenges, including subdued demand for energy, ongoing conflicts in the Middle East, and higher rates.

Soft on the Top

In the financial landscape of 2023, PSSI faced a mild dip in revenues over the first nine months, a slight drop in Q3 compared to the previous year, and a modest rise from Q2. The Company attributes the revenue decline to reduced time charter rates in the mother vessel segment and a slump in freight charter volumes from floating loading facility (FLF) and tugboat & barge (T&B) segments. While the core net profit showed growth over the nine months, Q3 saw a decrease compared to both the previous quarter and the same period last year. Notably, a chunk of the net profit in 9M23 stemmed from the profitable sale of vessels. Despite ups and downs, the core net profit margin remained generally higher in 9M23 than in 9M22, though it contracted in Q3/23 compared to both Q3/22 and Q2/23.

Trimming the Fleet

As of September 2023, PSSI strategically downsized its fleet to 70 vessels, a significant drop from the 82 vessels at the end of FY22. During the first nine months of FY23, the Company sold five tugboats and seven barges, while the numbers of FLF, MV, and FC remained constant at two, five, and two, respectively. The sale of vessels contributed to a whopping US$15 million in gains, causing a substantial boost in the Company's cash position compared to the end of FY22.

Risks Ahead

In the challenging landscape, PSSI faces risks tied to commodity prices, notably coal, constituting 87% of its cargoes in 9M23. While the Company mitigates the impact of weak coal prices through a contract-based system with its customers, dampening demand for energy commodities stemming from the less upbeat economic outlook remains a risk for future contract negotiations and load volume. Additionally, the ongoing conflict in Gaza poses a security risk for PSSI's inter-country freight operations which serve the Persian Gulf and the African continent. On the monetary front, elevated interest rate may hurt economic outlook, both on global and domestic economies. These risks underline the dynamic nature of PSSI's operations, demanding a strategic and adaptable approach to navigate through uncertainties.

Valuation Adjusted

Revisiting our previous analysis, where we set a target price of Rp660 per share for PSSI based on various valuation methods, adjustments have been made to reflect the company's performance in 9M23. Consequently, the revised target price stands at Rp618 per share, indicating a 24% upside potential from the current Rp500 per share. These adjustments consider both price multiples and the dividend discount model. Despite the modification, the target price maintains an optimistic outlook.