Singapore Shipping Corp

[Boon]

-- Initiation from RHB -- 

We initiate coverage on Singapore Shipping Corp Ltd (SSC), the only listed “pure play” Pure Car Truck Carrier (PCTC) company in the world, with a DCF-derived SGD0.59 TP (implying a FY16F P/E of 13.5x), representing 100% upside and recommend BUY. SSC is a rare gem  that offers both safety and growth in the highly-cyclical shipping sector. Operating in the highly oligopolistic PCTC sector, SSC carved a profitable niche by 1) securing a decade-long profit visibility through its long term charters to blue chip clients and 2) enjoying quality growth with its fleet expansion plans.
Close relationships secure decade of profit with long term charters. In the oligopolistic PCTC industry, SSC’s close relationships with its customers helped it secure decade-long profitable charters with blue chip majors like NYK Line and favourable borrowing rates due to its low-risk profile. Together with a minimum forex and oil price exposure, SSC has its profits virtually protected for the next 15-20 years.
Quality growth ahead, supported by robust operating cash flow. Through its existing charters, we estimate that SSC will generate a robust operating cash flow of c. USD22.8m in FY16. This means that SSC will have sufficient resources internally to support its expansion plans, allowing its profit to grow at a CAGR of c. 21.8% from USD9.3m in FY15 to USD20.5m in FY19F under our base case scenario.
Excellent track record of capital allocation and treating minority shareholders well. SSC’s management disposed of its shipping fleet before the peak of the cycle in 2008 and has since distributed more than USD200m in dividends. The company embarked on a fleet expansion programme last year, doubling its fleet to six vessels. Management plans to double the fleet again in the next 3-5 years. We believe that once the fleet expansion completes, the group can raise its dividend payout to 50% in FY19, implying 10.2% yield in a best case scenario.
DCF-derived TP of SGD0.59. With 1) safe earnings for the next decade, 2) quality growth ahead and 3) high FY19 dividends, we initiate coverage on SSC with a BUY and a DCF-based TP of SGD0.59 (WACC: 10%, terminal growth: 0%), representing 100% upside and implying a FY16 P/E of 13.5x.
Key risks: decreasing profits from agency business; counterparty risk from blue chip clients, particularly NYK Line.  More risks on page 9.

http://rhbosk.ap.bdvision.ipreo.com/NSig...6a2a3c39f9

Too bullish report. Typical of analyst, using straight line projection upwards base on latest earnings. Life is not as simple and don't go in straight line. As conservative investor I put in a bear case scenario to watch the downside and MOS as to whether to invest or not.
Globally economy is slowing down and vehicle growth cannot be independent of economy.

vested

http://rhbosk.ap.bdvision.ipreo.com/NSig...de34ed3a39

Firstly, looking at page 6 of the report on SSC's charters estimate by RHB:

1) Charter estimate for MV Boheme of USD 6.4 m seems low -  it should be around USD 10.0 m per annum, if I am not wrong.

2) Charter estimate of USD 10.8 m p.a. for MV Taurus Leader seems "high" - yet to be able to figure this one out...........

Well, as always, an analysis is only as good as its underlying assumptions...................

(vested)