BW Epic Kosan posted 2Q21 results yesterday with higher than we predicted revenues, but somewhat lower EBITDA due to increased operating expenses. Finance expenses grew as well, but the bottom line remained in a positive territory. The demand/supply balance looks promising, while the position in the market was strengthened with the recent two vessel addition. We increased revenue expectations, but somewhat lowered the margins and this resulted in an unchanged NOK 27/sh Target Price. However, the upside has shrunk after the recent share price improvement, therefore our recommendation is downgraded to Hold.

Increased OPEX and SG&A costs

Very solid revenues figure of USD 81.5m beat our expectations of USD 74.2m, but increased expenses brought the EBITDA figure below our projections. The growth of underlying OPEX was explained by the change in the fleet mix to include the more-expensive-to-operate semi-refrigerated and ethylene vessels and by Covid-19, which were primarily related to crew change expenses and freight forwarding costs for spares. SG&A expenses increased due to costs incurred during the combination with BW Kosan and should reduce in the future. Finance expenses also grew due to increased debt. Still, the bottom line came in a positive territory at USD 3.3m (USD 7.3m expected).

Two more vessels acquired

On Monday it was announced that BW Epic Kosan acquired two 9,000 LPG/ammonia/ethylene capable carriers built in 2008 from Odfjell SE. This, when finalized, would increase the number of ethylene carriers to 21 (in addition to 48 pressurized and 9 semi-refs). We have included those into our model, but the price might be altered as soon as it is officially disclosed.

Demand/supply still encouraging; more focus on IMO targets

For the balance of 2021 the challenges of 2020 are expected to remain. However, the longer-term fundamentals remain strong, with expected LPG seaborne trade growth beating the smaller gas vessel fleet growth forecasts even before scrapping. Also, the company communicated on the increased focus towards IMO 2030 and 2050 targets. BWEK is working not only on reduction of CO2, but also on projects that support wider decarbonization, such as shipping related to carbon capture and storage. Many of the vessels were said to be capable of carriage of future clean fuels, including ammonia.

Downgraded recommendation seeing lower upside

This was the first full quarter after joining the forces with BW Kosan. Following it and adding two new vessels to the picture, we increased revenue expectations, but this was offset by lower margins. The Target Price for the share stays the same at NOK 27/sh, but after the recent rally, the upside has lowered, thus we decided to downgrade our recommendation to Hold.
Source: Norne Research