BW Epic Kosan released the 2Q22 report this morning. If such figures had been released last year we would call the report strong, however, the last six months have spoiled us and we now admit that $8 million in EBIT and $3 million in net profit are significantly lower. what we had planned. Higher operating expenses in an inflationary environment and a weaker seasonal market were to blame. Expected supply remains balanced, but market uncertainty persists. As such, we are likely to make limited changes to our estimates while the recommendation is under review.
Lower margins in an inflationary environment
BW Epic Kosan released its 2Q22 results this morning. Revenue was down slightly to $86.4 million ($92.5 million expected by us), but the bigger issue was margins. Operational expenses increased due to Covid-19 and inflationary pressures, in addition to some one-time costs related to ship departures, while travel expenses increased following rising bunker costs. This led to an EBIT of $8.1 million, significantly lower than our projections of $12.2 million. Seasonality was also to blame here, as the summer lull impacted demand.
Still promising fundamentals
The seasonal slowdown is expected to continue in the third quarter due to lower domestic demand and the arrival of more US-origin products on larger vessels, increasing competition for the smaller vessels in the fleet. BWEK. In terms of supply and demand dynamics, the current combined small gas carrier fleet has total net fleet growth before scrapping of 2.8% for 2022 and 1.4% for 2023, while demand growth is forecast at a higher rate, at around +4% on average per year over the next few years.
Getting out of summer seasonality, but uncertainty remains
The company said that with the release of the weaker summer seasonality, it expects to see increased levels of profitability, but market uncertainty remains due to high energy prices, inflationary pressure and negative margins in the petrochemical industry. Therefore, we will adjust our estimates accordingly while our recommendation is under review.
Source: Norn Research