Singapore Shipping Corp

[Boon]

Report from L&T this morning.

Singapore Shipping Corp ($0.34, unchanged) 4Q to Mar’15 profit excluding
year ago’s one-time disposal gain of US$936,000 surged 92% to US$2.7mln
on the back of 28% yoy rise in sales to US$10.4mln, coming in above
expectations. As a result, full year to Mar’15 operating profit (excluding last
year’s one-time disposal gain) rose 22% to US$9.3mln.
The robust performance reflects additional contributions from 2 additional
RoRo specialized fleet of Pure Car and Truck Carriers (PCTC) that was delivered
in Aug and Nov 2014. Both sister vessels are 10 years old and increased SSC’s
PCTC vessel fleet from 2.3 to 4.3 vessels and total carrying capacity from
14,052 to 24,894 cars, representing a growth of 77% yoy.
The 2 additional vessels helped propel the ship-owning division sales by 63%
yoy to US$6.7mln and profit by 53% to US$1.9mln. Also helping bottomline
was the agency and logistics business segment which saw profit surging
135% yoy to US$0.8mln due to improved operating effi ciency and economies
of scale. This signals a strong turnaround from the past year’s declining profit
trend due to margin pressures.
Amidst the uncertain macro climate and recent slew of disappointing
results and outlook from numerous companies in Singapore, we find SSC
management’s confidence in their outlook comforting. Management
expects to not only perform better in the year ahead but with the complete
delivery of 3 additional vessels backed by 10-15 years of long-term charters
to reputable customers such as Mitsui OSK Lines, Nippon Yusheng Kabushiki
Kaisha and Wallennius Lines AB they are in fact expecting to provide a secure
base of recurring income and growth for the next 10 years or even longer.
SSC took delivery of Capricornus Leader (5,415 PCTC carrier in Sept’14),
Centaurus Leader (5,427 PCTC carrier in Jan’15) and fi nally the brand new
US$80mln Taurus Leader (7,000 PCTC carrier in Mar’15), raising their total
fleet from 2.3 to 5.3 and total carrying capacity from 14,052 to 31,894,
representing a solid capacity growth of 127%. These niche and specialized
PCTC carriers are chartered out for as long as 15 years to blue chip customers
mentioned above, giving SSC solid visibility going forward.
And with the recent appointment of Chairman and Founder CK Ow’s son YH
Ow as the new CEO, the company has committed to new growth plans to
double their current fleet size over the next 2-3 years to scale new heights.
Given the long term charter contracts to solid blue chip customers we would
not be too concerned with its current debt to asset ratio of about 64% as we
believe that as long as SSC is able to continue to lock in long term charter
contracts with reputable blue chip customers going forward, banks would be
more than comfortable to grant them collateral loans close to the full value of
the vessel value. This is because the fi nanciers will have the fi rst charge over
the cash fl ows which are backed by these blue chip customers as well as the
good track record and reputation of SSC.
Final dividend was maintained at 1 cent a share, translating to a payout ratio
of 40% and yield of close to 3%. We believe with better profi ts ahead, higher
dividends can be expected going forward.
We are expecting Mar’16 and Mar’17 profi t to grow another 30-35%
to US$12mln and US$16mln after last year’s 22%, translating to an
undemanding forward and prospective PE of 9x and 7x. Assuming their usual
40% payout ratio, forward yields would be an attractive 4.3% and 5.6%, up
from 3% currently.
We maintain BUY.

It seems to me that the two sister vessels had been delivered twice......ha-ha!..........where did they get so many delivery dates?