Singapore Shipping Corp

From Bloomberg:

Japan’s three biggest shippers agreed to combine their container operations to create the world’s sixth-largest box carrier, as the industry steps up consolidation this year amid a global turmoil in the sea-cargo business.
Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd., which are predicting operating losses this year, will create a company that will control 7 percent of the world container-shipping trade, according to a joint statement in Tokyo Monday. The combination will need to be approved by regulators in the European Union, U.S., China and Japan among others.
[...]

http://www.bloomberg.com/news/articles/2...ner-merger

Based on 2016 results, SSC has a price to free cash flow ratio of about 4.5. It seems Mr. Market is undervaluing this counter. Or is this a value trap? Food for thought.

Vested


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Shipping counters tend to have a high free cash flow generation ability. This is because: 1) the economic useful life of ships (about 20 years); and the financing of these ships (more than 50% of the ship's value tend to be financed by debts). In addition, under cash flow accounting, the payment of loan principal and its interest tend to fall in the "cash flow under financing activity", this results in free cash flow (Operating - investing) to look disproportionately high. Ships tend to be only worth their scrap value at the end of their useful life

Using an example to explain: A coy buys a ship for 140 mil which has a cash flow (opex) generation of 10 mil for its 20 years with annual maintenance of 500k. It uses 100 mil of 20 year debt and 40mil equity to finance it.

Operating cash flow: 10 Mil.
Minus Maintenance Capex: 500k
Free cash flow: 9.5mil
free cash flow to equity: 23.75%

However if we are to include the annual debt repayment of 5 mil,
the revised free cash flow is 4.5mil, with a free cash flow to equity of only 11.25%

Therefore to get a more robust valuation for shipping related stocks, a better way is to further minus off the interest and annual loan repayment of principal

Thanks for the detailed explanation. So FCF will appear high as long as the company does not buy new ships.

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Discovering Ro Ro Ship - published yesterday 11 Aug 2017

Thanks Chialc88,

Young boss, CEO has brought back significant amount of SSC, figure it's a good sign liao!
he has also indirectly create the support for price @ 29cts.

Good morning, valuebuddies.
Another day beginning with birds chirping happily in the forest.

Unfortunately, many of us live in a concrete jungle 
and can only enjoy the music from KTV.

enjoy a wonderful weekend:
听你说



I'm vested heavily in SpShip.
$$$ come from bestworld.

Significant amount of $$$ and hence need to be very careful in buying SpShip.

First questions is why SpShip?
Isn't it own and operate by the in-famous Ow family?

A: Exactly, why I thought SpShip is a good choice.
Ow is SG ambassador to Italy.
Last few years, he was in the news for stopping SL's dividends and 
multiple discussions on the right ways to treat value shareholders,
how to create a win-win-win for Employee-Ow-OPMI.

These events created -ve sentiment to SL (and I think SpShip) too.

Result: suppressed share price


Latest development:
Ow seems to move his power to young Ow and
definitely more OPMI friendly.


Second questions is why SpShip?
Isn't shipping a notoriously cyclical industry?
Aren't you scare of the recent O&G downturn impacting shipping industry?

A: mmm... bro, take a closer look at SpShip biz.
Let me know after you find out more about their biz model,
then we discuss on what and how is SpShip's cycle.
Of course, how our skilful and ruthless captain - Ow navigate the notorious shipping industry cycle.

Third questions - why SpShip?
Look at it's debt.
Are you aware the risk and danger of the huge debt it carries on it's book?

A: Yes. On one glance, I will drop SpShip from my watchlist due to it's high debt:asset 94m:175m
However, I'm very surprised that SpShip generated so many discussion (posts) in Valuebuddies.com
There must be something unique and special.
So, SpShip failed my level 1 screening but 
I still proceed to take a closer look because of various contributors of our valuebuddies.com
The rest is history.

A gem in the making.
So, the only questions in my mind is:

(12-11-2017, 03:18 PM)chialc88 Wrote: A gem in the making.
So, the only questions in my mind is:

Will Singapore Shipping Corporations become a multi-baggers?

Thanks for sharing.
Looking at the records, highest closing was on 17 July 2007 at 0.406 so let's see.

@edragon,
current spship compare to 2007 is completely different animal.

snr Ow executed the changes and pass on the baton to jr Ow.

if jr Ow decided to develop further, then we would expect a new journey ahead.
if left untouch, then we just need to be patient and reap snr Ow's fruits year after year.


BTW, I assumed that you're vested.
So lucky to be with you.

Snr Ow wants Jr Ow to take over his biz eventually, so this is on job training for Jr Ow.. (good to have billionaire father sir! )
SSC is smooth sailing as long as their Japanese automobile charterers are productive and making money!

Watch for the Japanese automobile manufacturers' biz instead!