SINGAPORE SHIPPING: Smooth Sailing For At Least The Next Decade

Excerpts from analyst's report

UOB Kay Hian analyst: Loke Chunying (left)

Singapore Shipping (SSCL SP) Smooth Sailing For At Least The Next Decade



VALUATION

• Singapore Shipping (Sgship) is trading at 12.1x FY15 PE and 1.7x P/B.

INVESTMENT HIGHLIGHTS

• Singapore Shipping (Sgship) is an established shipping group in Asia. Having been spun off from Hai Sun Hup Group (now known as Stamford Land), Sgship currently has two main business segments: a) ship owning, and b) agency & logistics.

• Seasoned management with a track record to boast of.  2008 marked the peak of the multi-year decline of the Baltic Dry Index. While many ship owners have suffered huge losses, Sgship led by industry veteran Mr Ow, was able to escape relatively unscathed having strategically sold off most of its ships at peak prices.

• Dividend bonanza. After disposing its vessels, Sgship returned bulk of the capital gains to shareholders, and has maintained a steady dividend of S$0.01/share since 2009. Since 2005, Sgship has returned S$250m to shareholders through dividends.

• Building up a specialised fleet of cash cows. Sgship has recently started to rebuild its shipping empire. Sgship currently owns 5.3 vessels (0.3 vessel being MV Cougar Ace in which Sgship has a 30% stake), all of which are a specialised fleet of RoRo carriers of Pure Car and Pure Truck (PCPT) Vessels used to transport vehicles and other rolling machineries. PCPT vessels are typically signed on longterm contracts of 10-15 years.

• Locked in recurring income for the next 10 years. Sgship’s five vesssels have all been charted out on long-term contracts to blue-chip clienteles, Wallenius Lines of Sweden and NYK Lines of Japan. This suggests that the group will enjoy quality locked-in income for the next 10 years. Sgship is supplying the vessel, crew and lubricants to the charter customer and will be relatively unaffected by changes in oil price.

• FY16: The rise of the titan. With expected contributions from three additional PCPT vessels which Sgship took delivery of in 2HFY15, FY16 is looking to be another year of growth for the group. The ship owning business contributed S$6.8m (or 70% of FY15 net profit) based on contributions from mainly 2.3 PCPT vessels.

• Heightened gearing… Following the acquisition of three additional PCPT vessels in FY15, Sgship has a net debt of US$100m.

• …but not overly worrying. We note that operating cashflow of Sgship has been relatively strong as it generates free cash flow (excluding acquisitions of new ships) of US$10m-12m in the last three FYs (mainly from contributions of its ownership of 2.3 PCPT ships and its agency & logistics business). Free cash flow is expected to improve with contributions from the three new vessels in FY16.

• Managed interest rate risks. To manage its interest rate risks, Sgship has entered into interest rate swaps (pay fixed and receives US$ LIBOR) which will mature over the next 3-15 years. According Sgship FY15 annual report, the weighted average effective interest rate per annum at the reporting date was 2.2%.

• Key risks include: a) customer concentration risk (four of Sgship’s 5.3 vessels are currently leased out to NYK Line, and b) credit risk of customer.

Full report here.