Relocating To Singapore Could Improve Shipping Efficiency, But Analysts Expect Earnings To Decline

Key Takeaways

• Redomiciliation to Singapore strengthens Hafnia's strategic position and potentially enhances revenue through operational efficiencies.
  
• Demand growth for oil and fleet upgrades could boost revenue and net margins, supporting high freight rates and shareholder value.
  
• Geopolitical instability, market inefficiencies, and route risks could undermine Hafnia's shipping revenue, earnings stability, and contract prospects in the future.

Catalysts

Owns and operates oil product tankers in Bermuda.

• The completion of redomiciliation to Singapore enhances Hafnia's strategic position in a global shipping hub, expected to bolster revenue and potentially lower operational costs by leveraging Singapore's robust financial and legal sectors.
  
• The anticipated demand growth for oil products, driven by geopolitical tensions and increased route distances, could sustain high freight rates, positively impacting Hafnia’s revenue and earnings.
  
• The upcoming fleet replacements and reduced cannibalization by crude tankers after Suez Canal disruptions suggest a potential uplift in charter rates, which would improve Hafnia's net margins and revenue.
  
• The strategic decision to potentially engage in a $100 million share buyback program reflects a focus on increasing shareholder value, potentially enhancing earnings per share as executed alongside dividends.
  
• Hafnia's commitment to sustainable shipping through ESG initiatives and technologically advanced operations like AI in data automation could lead to long-term operational efficiencies, positively affecting net margins and profitability.

Hafnia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hafnia's revenue will decrease by 41.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 28.7% today to 46.0% in 3 years time.
• Analysts expect earnings to reach $279.7 million (and earnings per share of $0.55) by about February 2028, down from $870.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.2x on those 2028 earnings, up from 2.8x today. This future PE is greater than the current PE for the NO Oil and Gas industry at 4.2x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.01%, as per the Simply Wall St company report.

Hafnia Future Earnings Per Share Growth

Risks

• Geopolitical instability, such as the Russia-Ukraine war, which has previously created favorable trading conditions, could stabilize, potentially leading to decreased demand for alternative shipping routes, negatively impacting charter rates and revenue.
  
• Seasonal softness and lower refinery margins have already impacted the product tanker market, indicating that such conditions could potentially recur, affecting Hafnia’s revenue and earnings.
  
• The current discrepancy between high tonne-miles and declining vessel earnings suggests potential inefficiencies or negative market sentiment, posing a risk to the future profitability and earnings stability.
  
• The risk of cannibalization by crude tankers, although expected to decrease, could still occur in the future, which would affect Hafnia's ability to secure lucrative contracts and maintain its earnings from the transportation of refined products.
  
• Potential future restrictions or closure of key shipping routes like the Suez Canal can decrease journey lengths and negatively affect tonne-miles, thus impacting the revenue and operating margins due to reduced demand for shipping capacity.

Valuation

• The analysts have a consensus price target of NOK84.977 for Hafnia based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK109.81, and the most bearish reporting a price target of just NOK71.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $608.0 million, earnings will come to $279.7 million, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of NOK54.55, the analyst price target of NOK84.98 is 35.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.