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Chemoil Expects 2008 Profit Growth as New Terminals Start Up
By Katherine Espina and Susan Li
Oct. 4 (Bloomberg) -- Chemoil Energy Ltd., the world's largest independent supplier of marine fuels, said profit may rise about 20 percent next year as more of its storage terminals start operations.
The company may spend as much as $55 million to build an oil storage terminal in Panama, Robert Chandran, the company's chief executive, said in an interview today. He expects the facility to start contributing to earnings by the third quarter of next year, when it begins partial operations.
``In 2008, we will go back to our usual expectation of growth rates of about 20 percent year-on-year, but this year will be tough because we lost two quarters,'' Chandran said, when asked about his profit outlook.
Chemoil is building terminals to increase storage facilities for use by customers including A.P. Moeller-Maersk A/S, the world's largest shipping company, and Taiwan's Evergreen Marine Corp.. The company's profit slumped 94 percent in the second quarter to $606,000 from a year earlier because of a loss by an associated company in the U.S. and delays in approvals for a supertanker to be used as a storage facility in Singapore.
Chemoil will incur ``big savings'' from the Panama terminal, Chandran said. The company will choose ``in weeks'' from three to four contractors, he said, declining to identify them.
Chemoil yesterday said it will construct the terminal at the port of Cristobal with a total capacity of about 245,000 metric tons. The terminal will be able to accommodate tankers up to 110,000 deadweight tons and four refueling barges.
Helios, Fujairah
The company's oil terminal, being developed by Helios Terminal Corp. on Singapore's Jurong Island, will also start operations by 2008, contributing to earnings, Chandran said.
The oil terminal will have a capacity of 448,000 cubic meters with 18 storage tanks, Chemoil said on Feb. 14. It is building an $80 million joint venture terminal, in Fujairah in the United Arab Emirates, Chandran said.
Chemoil stock has slumped 22 percent from Sept. 17 when the company announced that third-quarter profit will be reduced by delays to a supertanker storage project in Singapore, Asia's largest refueling stop, and hedging losses.
The supertanker, or very large crude carrier, was stationed at a less optimal location in Singapore than originally planned because of delays in obtaining permits. Furthermore, two collisions caused by third parties and related machinery failures resulted in increased costs and operation difficulties.
The company will ``go back to normal growth'' in the fourth quarter, Chandran said today.
Hedging Woes
After the company's third-quarter earnings outlook announcement, UBS Investment Research analyst Cheryl Lee and CIMB-GK Research Pte Ltd. analyst Robert Adair downgraded the stock to ``neutral,'' adding the company may incur a loss in the third quarter.
Lee said that due to volatile market conditions in July and August, Chemoil used crude oil derivatives to hedge its fuel oil inventory, as they offer better liquidity than fuel oil derivatives.
Prices didn't move in favor of Chemoil's strategy and its margins were affected, Lee said in a Sept. 19 note.
``Given that the margins of the business are relatively thin, if the company can't hedge its exposure to crude oil fluctuations in an efficient manner, at the very least, it means that earnings are going to be volatile and at worse, profits can get wiped out by some big price movement,'' CIMB-GK's Adair said in a phone interview today.
``The key question to them is how they can be certain that it won't recur,'' Adair said.
Shares Increase
Chemoil shares rose as much as 4 U.S. cents, or 8 percent, to 54 U.S. cents and were trading at 53 U.S. cents at 3:36 p.m. Singapore time. The stock has fallen 7 percent so far this year, compared with a 26 percent gain in Singapore's benchmark Straits Times Index.
This year, Chemoil sales volume will likely rise by 10 percent from 2006 when it sold 13.7 million tons and its average price of marine fuel will rise to $365 per ton in 2007 from last year's $313 a ton, Chandran said.
Chemoil's 2006 profit rose 17 percent to a record $57.8 million from a year earlier as the company sold more fuel at a higher price.
Chandran owns about 48 percent of Chemoil while Itochu Corp., holds 37 percent. The public holds the remaining stake. Chandran has a net worth of $490 million, making him Singapore's 14th wealthiest, Forbes Asia said in August.
I joined this ship @0.51cts.