Frontline - Earnings returned to black; revenue and profitability to improve further

Earnings returned to black; revenue and profitability to improve further
Frontline (FRO) recently announced its 1Q21 results, which were in line with our expectations. The company’s TCE revenue grew by 10.9% QoQ on the back of improved spot TCE rates, high fleet utilisation and increased oil consumption and trade. The blockage at the Suez Canal in late March further supported the earnings of Suezmaxes. However, FRO’s operating revenue slumped 52.9% YoY, and its TCE revenue nosedived 62.9% YoY during 1Q21 as spot TCE rates of VLCCs and Suezmaxes plunged 74.6% and 73.7% to USD 19,000pd and 15,200pd respectively over the same period a year ago. Spot TCE rates realised by FRO’s LR2 also dropped 61.5% YoY to USD 12,000pd over the same period. Operating expenses slide by 1.8% YoY mainly due to slightly lower vessel operating expenses, coupled with reduced general and administrative expenses. EBITDA plummeted 75% YoY and FRO’s net income plunged 82.5% YoY to USD 28.9mn in 1Q21, which translates into an EPS of USD 0.15 per share. The tanker market bottomed out in late 2020 and the company returned to profitability during the quarter after posting a net loss of USD 9.2mn in 4Q20, although the revenue and profitability are expected to remain nearly flat over the next two quarters. However, the potential recovery in global oil consumption in the latter 2021 and early 2022 will support the demand for tankers that will lead to higher revenue and profitability. Moreover, we believe the company will resume the dividend payment in late 2021, which will rise further in 2022 to support the uptrend in FRO’s stock prices.