Singapore Shipping Corp

[ksir]

It is definitely possible for something "special" to happen. After all, something special did happen ~17years ago. Then, Chairman Ow was in his element - selling all of SSC's non-PCTC vessels in the peak of the cycle and then giving out special dividends. SSC was left with ~3 vessels.

For the past 17years, net of pre-owned purchases, scraps and new build, SSC currently has 5 PCTC as of end FY23. Coincidentally, the last addition to the current fleet was a brand new PCTC in 2015. With a useful life of 30years, the profile of the 5 vessels are as follows - 9 years old - 1, 20years old - 2, 24years old - 1, 25years old - 1).

Unless technology has improved in the last 10years to extend useful lives OR insurance firms are willing to insure against >30yr old boat sinking 5000cars to the bottom of the ocean, else it is reasonable to assume that 40% of the fleet size will require some replenishment in the coming years. With all the ESG nonsense, could Chairman Ow be forced to abandon his preference for pre-owned (like a 5-10year old PCTC and then secure another 10+5year lease) and get a new built instead?

Extract from Chairman Ow's msg in AR23:
It is evident that there will be a radical shift to embrace Bio-LNG energy as a solution for the shipping industry’s decarbonisation efforts to reach the 2030 International Maritime Organization targets. Such an inevitable shift requires highly trained sea-going personnel and there is currently a dearth of such resources. Moreover, the capital expenditure will also increase greatly from US$70 million to US$110 million for a newly built LNG dual-fuel PCTC

With all the shipyards full, booking may have to be made earlier than later. So where is the capital cycle turning towards? On well, Mr Market cannot be right valuing Yangzijiang Shipbuilding at >2x P/B, while SSC is almost at 50% discount to book! Or maybe He could be right after all, predicting that SSC's fat will be distributed to outsiders.

You are right that the fleet renewal is a high uncertainty factor, not whether they can renew the fleets, but rather, can they renew the fleets with satisfactory IRR.
It appears the answer so far is a NO.

Which then bring us to what is left out of the current fleets!
I look at each fleet similar to the 30 years leasehold single tenanted Industrial estate with initial 15 years net net lease contract and high chance of another 10 years extension.

I remember I did the numbers back then upon the retiring of Cougar Ace, the figures seem to be still very much relevant. I used Cougar Ace 27 years Operating Lifetime as reference and try to guesstimate the other fleets.

So far, the numbers seem to be flowing in better than my expectation mainly as the initial cashflow is higher than the flatten revenue recognized.
Present Value of $ of course is better with high initial cashflow.

Without drilling into details, my reasoning to invest in SSC is also borders on rather too simplistic view. It is a stronger/better bank deposit with an expected higher capital return in the end.
At S$0.25, we are buying at dividend yield of 4%, net cash of 53% of market cap, PB 0.6, Earning Yield 10-12%, ROE of 7-8%.
By the time, the fleets are exhausted, very sure net cash over 100%, till how many times over that 100% I don't know (but I suspect more than 2x), don't want to put that much effort to count. 

Hence the reasoning to own this piggy bank:
4% yield with over 100% capital in the end, a better option than bank time deposit or Gov bond.

[postage paid]

It is definitely possible for something "special" to happen. After all, something special did happen ~17years ago. Then, Chairman Ow was in his element - selling all of SSC's non-PCTC vessels in the peak of the cycle and then giving out special dividends. SSC was left with ~3 vessels.

For the past 17years, net of pre-owned purchases, scraps and new build, SSC currently has 5 PCTC as of end FY23. Coincidentally, the last addition to the current fleet was a brand new PCTC in 2015. With a useful life of 30years, the profile of the 5 vessels are as follows - 9 years old - 1, 20years old - 2, 24years old - 1, 25years old - 1).

Unless technology has improved in the last 10years to extend useful lives OR insurance firms are willing to insure against >30yr old boat sinking 5000cars to the bottom of the ocean, else it is reasonable to assume that 40% of the fleet size will require some replenishment in the coming years. With all the ESG nonsense, could Chairman Ow be forced to abandon his preference for pre-owned (like a 5-10year old PCTC and then secure another 10+5year lease) and get a new built instead?

Extract from Chairman Ow's msg in AR23:
It is evident that there will be a radical shift to embrace Bio-LNG energy as a solution for the shipping industry’s decarbonisation efforts to reach the 2030 International Maritime Organization targets. Such an inevitable shift requires highly trained sea-going personnel and there is currently a dearth of such resources. Moreover, the capital expenditure will also increase greatly from US$70 million to US$110 million for a newly built LNG dual-fuel PCTC

With all the shipyards full, booking may have to be made earlier than later. So where is the capital cycle turning towards? On well, Mr Market cannot be right valuing Yangzijiang Shipbuilding at >2x P/B, while SSC is almost at 50% discount to book! Or maybe He could be right after all, predicting that SSC's fat will be distributed to outsiders.

You are right that the fleet renewal is a high uncertainty factor, not whether they can renew the fleets, but rather, can they renew the fleets with satisfactory IRR.
It appears the answer so far is a NO.

Which then bring us to what is left out of the current fleets!
I look at each fleet similar to the 30 years leasehold single tenanted Industrial estate with initial 15 years net net lease contract and high chance of another 10 years extension.

I remember I did the numbers back then upon the retiring of Cougar Ace, the figures seem to be still very much relevant. I used Cougar Ace 27 years Operating Lifetime as reference and try to guesstimate the other fleets.

So far, the numbers seem to be flowing in better than my expectation mainly as the initial cashflow is higher than the flatten revenue recognized.
Present Value of $ of course is better with high initial cashflow.

Without drilling into details, my reasoning to invest in SSC is also borders on rather too simplistic view. It is a stronger/better bank deposit with an expected higher capital return in the end.
At S$0.25, we are buying at dividend yield of 4%, net cash of 53% of market cap, PB 0.6, Earning Yield 10-12%, ROE of 7-8%.
By the time, the fleets are exhausted, very sure net cash over 100%, till how many times over that 100% I don't know (but I suspect more than 2x), don't want to put that much effort to count. 

Hence the reasoning to own this piggy bank:
4% yield with over 100% capital in the end, a better option than bank time deposit or Gov bond.

I think managements desire to continually pay out that 4% is important too.

I find the management has no incentive to continually pay out that 4%. It doesn't increase their bonus, and they already get cash via their employment with the company.

You can check out this management's track record in other places.

Would be interested to know what reasons makes you confident of the payout given the track record and incentives

[weijian]

Without drilling into details, my reasoning to invest in SSC is also borders on rather too simplistic view. It is a stronger/better bank deposit with an expected higher capital return in the end.
At S$0.25, we are buying at dividend yield of 4%, net cash of 53% of market cap, PB 0.6, Earning Yield 10-12%, ROE of 7-8%.
By the time, the fleets are exhausted, very sure net cash over 100%, till how many times over that 100% I don't know (but I suspect more than 2x), don't want to put that much effort to count. 

Hence the reasoning to own this piggy bank:
4% yield with over 100% capital in the end, a better option than bank time deposit or Gov bond.

hi ksir,
What would be your view on the integrity of the 4% piggy bank rate based on the fact that it paid out just 2% in FY21?

And mind you, those ships are on long term charter and in FY21, the company achieved +11% YoY NP improvement as well.

So it seems SSC does has a dividend policy after all. Chairman Ow has chopped the guarantee stamp of 2%! So after all, 4% is right on cue - 2% guaranteed/chopped by Chairman Ow + 2% (only when market is not uncertain).

The last I check, my real piggy banks assuredly gave out what they were supposed to, ie with no strings attached to market conditions. Some other wanna-be piggy banks gave out more, I guess I cannot blame them for deviating from been consistent as the market becomes "more certain".

AGM2021 Q&A

The Company has reduced its dividend from 1 Singapore cent to 0.5 Singapore cent for FY2021. The dividend has been 1 Singapore cent for many years, even last year when the pandemic upended many businesses. What is the reason for this uncharacteristic and drastic reduction of dividend?

The Company’s dividend policy is to distribute a dividend of no less than half Singapore cent per share for each financial year, subject to and taking into account certain factors as set out on page 39 of the Annual Report 2020/2021. Taking into account the continuing uncertain market conditions caused by the COVID-19 pandemic, the decision to declare a dividend of half a Singapore cent per share for the financial year ended 31 March 2021 was reached.

https://links.sgx.com/FileOpen/20210728%...eID=676073

SSC's dividend policy (extracted from AR23):
The Company has a written dividend policy. The Company’s dividend policy is to distribute a dividend of no less than half Singapore cent per share for each fi nancial year, subject to and taking into account various factors outlined below as well as other factors deemed necessary by the Board

[ghchua]

SSC's dividend policy (extracted from AR23):
The Company has a written dividend policy. The Company’s dividend policy is to distribute a dividend of no less than half Singapore cent per share for each financial year, subject to and taking into account various factors outlined below as well as other factors deemed necessary by the Board

Hi weijian,

It is the same dividend policy for St****** as well. So, it is consistently applied across Mr Ow's listed entities. Shareholders who are looking for more would have to look at their performance each year and make their own judgement whether it will be more than 0.5c per share or not.

[CY09]

My opnion is that these 2 companies mentioned are stingy with OPMI. Investors should expect the same amount of dividend year in year out. Resilient businesses with cashflow but the chairman is stingy with shareholders. Its not much use to value based on how resilient the RORO business or the 4/5 star hotel business its sister company has in Australia

The structure is not in favour of OPMIs but it has a good dividend track record. Treat both companies as bond like dividends investments. Is 4% worth it for a company like this? It is your own guess but for me, a 4% close to risk free just sits too slightly below my threshold. I prefer 4.5%-5%

[ksir]

Not sure if I ever implied the 4% is guaranteed. If that is the assumption, I'd say NO.
As with any business (except those with wide moats), running them in real-world is darn tough.
As passive small investor, my expectation in my invested company is to accept all in a package (it came with good + bad).
It's a good visible long term revenue + reliance on a strong businessman (with his own style, for better or worse).

Most of times, you get 4%, a certain uncertain period you get 2%, + 10% of buyback so far, take & give, I'd say why not?

Then there is of course a question of why the man getting S$1.8-1.9M per year?
This is not the Daily Journal which Munger was running it for zero fee.
If SSC getting a sales personnel who can secure long term charter and with connection with the big shipping co, the cost might be more or less the same or less or even more, who is counting.

But again, it's a package, I invest in the co with eyes wide open and accept the package that comes with it.
I am not going to whine and complain why they not giving more dividend or telling the Management what to do.
If I were to do that, it's a fool's errant.

[ghchua]

Hi ksir,

You have made your own judgement and I would say it is an intelligent one as well. Want higher yield? Sure. Many will remember how shipping trusts listed on SGX which used to give higher yield than this company but what happened? One delisted. One liquidated with unitholders getting nothing back on remaining assets. One is still listed but with unit price way below their IPO price, and with distributions suspended for many years before resuming.

You are absolutely right on the part in securing long term charter with reputable counter parties. Many of these shipping trusts couldn't do that, and even if they do, those counter parties couldn't pay up when times are bad. Coupled with high gearing, it is a recipe for disaster for these shipping trusts, notwithstanding their high yield.

[weijian]

Not sure if I ever implied the 4% is guaranteed. If that is the assumption, I'd say NO.
As with any business (except those with wide moats), running them in real-world is darn tough.
As passive small investor, my expectation in my invested company is to accept all in a package (it came with good + bad).
It's a good visible long term revenue + reliance on a strong businessman (with his own style, for better or worse).

Most of times, you get 4%, a certain uncertain period you get 2%, + 10% of buyback so far, take & give, I'd say why not?

Then there is of course a question of why the man getting S$1.8-1.9M per year?
This is not the Daily Journal which Munger was running it for zero fee.
If SSC getting a sales personnel who can secure long term charter and with connection with the big shipping co, the cost might be more or less the same or less or even more, who is counting.

But again, it's a package, I invest in the co with eyes wide open and accept the package that comes with it.
I am not going to whine and complain why they not giving more dividend or telling the Management what to do.
If I were to do that, it's a fool's errant.

hi ksir,
The only guarantee I mentioned was Chairman Ow's guarantee of 2%. I think we can agree he guarantees that.

You compared SSC to a "a piggy bank that gives your 4% on your deposit" and so I decide to try to be convinced. Unfortunately after some effort, I only see a structured note (without SDIC insurance) that gives 2% guarantee.

Nonetheless, I am surely we agree to disagree here. This is what makes it valuable here too.

[weijian]

The current vehicle growth tailwind is coming from EV replacement of their ICE cousin and so prospects look good. Earlier in the year, BYD/SAIC started operating (and probably owning?) their own ROROs - While this looks like a threat but could the market be big enough for everyone?

It sounds like Chairman Ow waiting for someone to make a mistake, so that he can pounce on the cheap?

SUBSTANTIVE QUESTIONS RECEIVED AND ANSWERS GIVEN AT THE COMPANY’S ANNUAL GENERAL MEETING (“AGM”) HELD ON 30 JULY 2024

Given that the world and IMO are pushing for net zero carbon emissions and clean energy, it is inevitable that car carrier vessels like PCTC will eventually move from using fossil fuel oil to renewable energy, such as biofuel. At present, bulk of the vessels in the world are still continuing and heavily relying on fossil fuel oil, with the use of LNG as a transition measure mainly for newbuilds. The lack of visibility of how long this transition will end and the expected heavy investment costs in transitioning to LNG or renewable energy vessels are part of factors deterring many from venturing into. In this regard, the Company will keep in view for investing in LNG vessel until further development and more information is available for the Company to make further evaluation and assessment.

https://links.sgx.com/FileOpen/SSC%20-%2...eID=816554

[ksir]

Interesting that 25years old chap (Boheme) can get another 5 years charter:
https://links.sgx.com/1.0.0/corporate-an...0final.pdf

By the time it finishes its charter, it'd be 30+ years old, better than my expected 27 years.
They seem to imply the charter rate is higher, likely with higher cost to "renovate" to "green" requirement and low/zero scrap value in the end (in any case, I applied zero scrap value in my rough valuation).

So it seems to be a good "bonus" from Boheme.