The full story of Gulf Navigation Holding's earnings has been somewhat hidden beneath the surface. The shipper, based in Dubai, said its net profit increased by more than fivefold to Dh20.5 million for the second quarter compared with the same period last year. However, that was primarily through a one-off payment that helped the company sustain its numbers.
It received a full advance payment with interest of Dh23.7m over cancelled orders from the South Korean company SLS Shipbuilding, which was reported as financing income, said Kareem Murad, the senior vice president at Shuaa Capital investment bank based in Dubai. "Other than that one payment, nothing was out of the norm in the second quarter," he said. Mr Murad said that without the advance payment, Gulf Navigation Holding's bottom line showed a net loss of Dh3.2m in the second quarter.
The stock, which closed yesterday at 50 fils, has fallen by more than 15 per cent since its peak in February. It had been trading up recently on initial investor reaction to the headlines regarding the initial results, in addition to management comments that the company may increase its fleet. The shipper, which owns and operates 15 chemical and oil tankers, has two additional chemical tankers under construction that will be launched later this year. It is likely they will be paid for out of the company's Dh400m cash reserve.
Gulf Navigation Holding will be hard-pressed to pull off further fleet expansion as that would require it to take out debt financing and many banks remain reluctant to lend money in the current environment. The company already has a significantly leveraged balance sheet with a debt-to-equity ratio of 61.3 per cent before taking into account vessels under construction, Mr Murad said. The shipper is also at risk of volatility in charter rates, which some expect will take a dip in the third quarter and then recover by the end of the year. "A drop in rates will have an immediate impact on revenues and bottom line," said Mr Murad.