National Shipping Company of Saudi Arabia (NSCSA) reported a strong first-quarter profit after a bad 2011, and with recent contracts, the expansion of the company's aluminium transport business looks promising.
NSCSA, which leases out oil tankers, reported to the Saudi stock exchange that its profit for all of last year fell 30.6 per cent to 287.8 million riyals. However, the company has staged a rebound this year, with first-quarter profit 41 per cent higher than in the previous three months. First-quarter profit surged to 160.1m riyals from 59.7m for the same period last year, a year-on-year increase of 168 per cent.
"It is a quite spectacular rebound in earnings," said Redwan Ahmed, an equity research analyst at EFG-Hermes. "I didn't think there would be such a strong recovery."
Saleh Nasser Al Jasser, the chief executive of NSCSA, said in the statement to the stock exchange that solid growth was helped by the higher lease rates the company was able to charge for oil tankers.
Higher rates may not always be a possibility, however, as they fluctuate with demand for oil.
Mr Al Jasser added the profit was achieved despite a 23 per cent increase in the company's costs for fuel storage containers. Shareholders have been rewarded. Earnings per share from net profit for the first quarter totalled 0.51 riyals, up from 0.19 riyals for the same quarter last year.
EFG-Hermes has a "sell" rating on NSCSA, mainly because the stock has risen 49 per cent so far this year to 18.15 riyals and the analysts believe it will not go higher without a significant increase in the lease rates the company charges on its oil tankers. EFG-Hermes believes such an increase is unlikely.
However, last month, NSCSA signed a one-year contract with Qatar Aluminium, known as Qatalum, to transport aluminium from Qatar to the United States. The contract is worth about 50m riyals. The award of the contract followed a successful trial.
NSCSA said it was also possible it would move aluminium for Qatalum to Turkey and Italy. The aluminium shipping venture could be a shrewd way for NSCSA to hedge against volatility in oil-tanker shipping rates. This strategy could benefit NSCSA's shareholders.