KDM Shipping posts net loss of USD 6.5 mln in 1H14

Maritime cargo shipping company KDM Shipping (KDM PW), operating in the Black, Azov, Mediterranean and Caspian Sea regions, reported a 5.4% decrease in revenue to USD 11.4 mln in 1H14, as an almost 4x qoq estimated jump in its top line to USD 9 mln in 2Q14 didn’t compensate for a poor 1Q14 result (revenue was USD 2.7 mln in 1Q14, -58% yoy). The firm’s 1H14 net loss was USD 6.5 mln, compared to a positive bottom line of USD 3.9 mln a year ago, being impacted mostly by a non-cash impairment charge taken on fixed assets in 1Q14.



EBITDA, adjusted for the charge, stood at a breakeven level of USD 0.3 mln in 1H14, compared to a positive result of USD 4.8 mln in 1H13, following an upsurge in operating and SGA expenses. KDM Shipping minimized its CapEx to merely USD 35,000 in 1H14, compared to USD 3.9 mln in 1H13, but the company continued to burn cash, generating negative FCF of USD 4.2 mln in 1H14 (compared to negative USD 6.7 mln a year ago).



Management disclosed it is preparing a new strategy for its ship repair and passenger segments, aiming to improve their financial performance. Regarding KDM’s core segment, cargo shipping, the company continued shifting its fleet to a Russian jurisdiction from Ukrainian, but the expected timing for its completion isn’t clear yet. KDM Shipping sees higher margins and more sustainable business for cargo ships operating under a Russian flag.



Roman Topolyuk: As is the case for any company with exposure to the Donbas war, KDM Shipping’s financial performance has been negatively impacted. Moreover, the firm’s reporting transparency has worsened too after ceasing to publish regular operating update since March 2014. Therefore, the nature of the steep increase in operating costs, the key negative driver of the plunge in profitability, isn’t fully clear. A bright spot in the 1H14 financial statement is a qoq improvement of adjusted EBITDA in 2Q14 to positive USD 0.7 mln from negative USD 1.0 mln, presumably because operations in its freight segment have significantly improved.



While that could be a sign of a turnaround, management plans to pursue a new strategy in the repair and passenger segments, as well as the cargo shipping segment, which are subject to execution risk. With the war in Donbas only escalating, and despite the stock already trading at very enticing valuation levels (trailing EV/EBITDA of 0.9x), we recommend waiting for better entry levels for a long position.

Источник: Конкорд Капитал