Penguin International

(11-03-2015, 03:35 PM)xlandjy Wrote: I am really puzzled... the tone of the interview with Tham was quite positive. Very much more positive than what was mentioned in the latest quarterly report.

My second puzzle is the substantial in Forex... Why are they involved so much in forex and made the company suffered a loss in forex dealings... Why?

I think it is not good enough and even dangerous to rely on just one particular quarter's numbers to draw conclusions on whether a business is doing better or worse, or is going to trend better or worse.

A closer look into what contributed to Penguin's lower PBT in 4Q should point towards the 38.7% YoY increase in Administrative Expenses to $5.404m. My simple guess is that Penguin's BOD could well have approved a very nice year-end bonus payment to key managers and staff for a job very well done in FY14.

As for the much bigger forex losses in both 4Q and the full year, my guess is that they are related to the Penguin's forex hedging contracts taken for the net long USD position (vs. SGD) on the forward crew boat sales contracts already secured. Accounting treatment wise, Penguin must revalue such forex hedging contracts on balance-sheeet date (i.e.31Dec14) based the closing market USD/SGD rate, which had risen by some 6% from 1Aug14 to 31Dec14…..
https://sg.finance.yahoo.com/echarts?s=U...X;range=1y
thus the forex losses - which is expected.

But more importantly, we must remember that in the first place such forex hedging contracts are likely taken up mainly to protect Penguin's PBT and operating profit margin in SGD terms in the event that the USD suffers an unexpected depreciation against SGD in the forex market. The sharp rise Penguin's GP in tandem with the rise in Revenue in FY14 is a reliable evidence that the management including the CFO is managing the basic profit margin of the combined ship yard and chartering fleet operations very well.

Hi dydx,

Interesting fact, given that USD has strengthened another 4.5% against SGD in the past 3 months, wont it mean Penguin's forex loss in this quarter will be approx 2 mil in light of its increasing revenue. Perhaps that's an explanation why the market is so bearish against it

(11-03-2015, 11:10 PM)CY09 Wrote: Hi dydx,

Interesting fact, given that USD has strengthened another 4.5% against SGD in the past 3 months, wont it mean Penguin's forex loss in this quarter will be approx 2 mil in light of its increasing revenue. Perhaps that's an explanation why the market is so bearish against it

Well, we know that such forex losses - aptly described as "net fair value loss on derivatives" - are more accounting in nature based on revaluation carried out on B/S cut-off dates, and the underlying forex contracts (whether straight forex forward or forex option contracts) are meant to protect the expected profits and margins as well as the net cash flow of Penguin's contracted boat building contracts and sales going forward. While accounting wise such losses - depending on the extent of a further fall in the USD/SGD exchange rates - will reduce Penguin's reported PBT in the short term, they would not negatively impact Penguin's expected profits to be realised from the boat building contracts in the next few quarters when the boats are completed and delivered. But for all we know the management could have already decided to stop such hedging forex contracts and allow Penguin to ride on the current rising trend of the USD/SGD rates. If this is the case, and if the USD continues to appreciate vs. SGD, Penguin's OP and margins would stand to enjoy an extra boost from the positive forex impact. All these will depend on the management's forex forecast and decision whether to hedge or not.

Realistically speaking, forex losses should not hurt Penguin's real profitability of its boat building activity over time too much as the GP Margin at a high of approx. 35%, and the short lead time of their boat building contracts, together would cushion and limit their negative impact. As well, it is also unrealistic to assume the USD to continue rising indefinitely.

Shareholders can and should ask questions on forex hedging during the AGM.

(11-03-2015, 11:55 PM)dydx Wrote: But for all we know the management could have already decided to stop such hedging forex contracts and allow Penguin to ride on the current rising trend of the USD/SGD rates. If this is the case, and if the USD continues to appreciate vs. SGD, Penguin's OP and margins would stand to enjoy an extra boost from the positive forex impact. All these will depend on the management's forex forecast and decision whether to hedge or not.

No reasonably responsible BOD will do that and if that is indeed the case, I would start to question their judgement as this is akin to 'betting' on the direction of the USD.

Penguin is in the business of building AHTs and Crew Boats not FOREX trading. If the bulk of their revenue is denominated in USD, then they must ensure that they adopt the appropriate hedging forex strategy to smooth out fluctuations. If this is done well, then the overall impact should be minimal.

So barring any unforseen events, I agree with your assessment that it should not impact Penguin bottomline adversely.

In 4Q, Penguin added 22.5 million worth of inventories. Comparing to the full FY14, Penguin added a total of 29.93 million worth of inventories in the full year.

Is this a good sign of order book in FY15?

(Vested)

Knowing the management and their conservative style, they would not be so bold to order so much inventories unless there is REAL demand from clients.

for me, i buy more penguins.

(12-03-2015, 03:33 PM)lonewolf Wrote:

(11-03-2015, 11:55 PM)dydx Wrote: But for all we know the management could have already decided to stop such hedging forex contracts and allow Penguin to ride on the current rising trend of the USD/SGD rates. If this is the case, and if the USD continues to appreciate vs. SGD, Penguin's OP and margins would stand to enjoy an extra boost from the positive forex impact. All these will depend on the management's forex forecast and decision whether to hedge or not.

No reasonably responsible BOD will do that and if that is indeed the case, I would start to question their judgement as this is akin to 'betting' on the direction of the USD.

Penguin is in the business of building AHTs and Crew Boats not FOREX trading. If the bulk of their revenue is denominated in USD, then they must ensure that they adopt the appropriate hedging forex strategy to smooth out fluctuations. If this is done well, then the overall impact should be minimal.

So barring any unforseen events, I agree with your assessment that it should not impact Penguin bottomline adversely.

I am vested in Peguin and hope we can find out from the management the following at coming AGM:

(1) What is the policy wrt the management of forex?
(2) The cause of the recent forex loss? Lessons learnt and etc.
(3) The management, being a listed company, should be forthcoming with the investment fraternity. Peguin is not a nuclear weapon company and does not have to operate under severe secrecy.
(4) What is the dividend policy? Can we set at 20, 25 or 30% of the earnings as dividend?

If the management refused to accept the above, I would humbly suggest to them to buy out the shares of the company and have it deleted.

(12-03-2015, 10:05 PM)xlandjy Wrote:

(12-03-2015, 03:33 PM)lonewolf Wrote:

(11-03-2015, 11:55 PM)dydx Wrote: But for all we know the management could have already decided to stop such hedging forex contracts and allow Penguin to ride on the current rising trend of the USD/SGD rates. If this is the case, and if the USD continues to appreciate vs. SGD, Penguin's OP and margins would stand to enjoy an extra boost from the positive forex impact. All these will depend on the management's forex forecast and decision whether to hedge or not.

No reasonably responsible BOD will do that and if that is indeed the case, I would start to question their judgement as this is akin to 'betting' on the direction of the USD.

Penguin is in the business of building AHTs and Crew Boats not FOREX trading. If the bulk of their revenue is denominated in USD, then they must ensure that they adopt the appropriate hedging forex strategy to smooth out fluctuations. If this is done well, then the overall impact should be minimal.

So barring any unforseen events, I agree with your assessment that it should not impact Penguin bottomline adversely.

I am vested in Peguin and hope we can find out from the management the following at coming AGM:

(1) What is the policy wrt the management of forex?
(2) The cause of the recent forex loss? Lessons learnt and etc.
(3) The management, being a listed company, should be forthcoming with the investment fraternity. Peguin is not a nuclear weapon company and does not have to operate under severe secrecy.
(4) What is the dividend policy? Can we set at 20, 25 or 30% of the earnings as dividend?

If the management refused to accept the above, I would humbly suggest to them to buy out the shares of the company and have it deleted.

1) What if the policy already in the AR, but conveniently skipped?
http://www.valuebuddies.com/thread-3645-...#pid108856

2) Forex hedging, if done properly, will be balanced out in due course. I really doubt a lesson to be learned by CFO

3) I am comfortable with its "secrecy", as an existing shareholder.

4) The last two years have been consistently stayed around 20%, but I don't recall a formal dividend payout policy. I reckon the ratio will be maintained, if not go higher in near future. May be a good question to ask.

I might have been outdated, so appreciate someone can correct me where necessary.

I thought if the hedging instruments are applied exclusively to effectively hedge against certain items (in the case of Penguin, presumably the sales contracts), the impact of the hedging should be categorised into that specific items in the accounts (if it is meant for the sales contracts, then the specific item refers to the revenue).

If there is still high amount of forex gains/losses, it could be simply due to (i) the revaluation of certain non-reporting currency denominated items, or (ii) ineffectiveness in applying the hedging instrument, or (iii) management's speculation on FX.

I don't read the Penguin's latest results (as I rely much on the valuebuddies) so pardon me if my statement or assumption are incorrect.

[ tiny tiny lots vested ]

Penguin stock seems to be down as per oil price. Looks like market is giving a strong signal to trade this stock as per oil price trend?

sent from my Galaxy Tab S