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21-05-2014, 10:42 PM
(This post was last modified: 22-05-2014, 03:18 AM by Nick.)
FY 2014 results -
http://infopub.sgx.com/FileOpen/SSC31031...eID=298188
My Thoughts:
1) The logistic assets proved to be seasonal and delivered $0.3 mil NPAT in 4Q 2014. The disposal of the loss making associate for US$1 million will improve the division results next year. Proved to be a really valuable acquisition - it earned over $3 million profit in its first year despite the Group paying $12 million and it already held $7 million cash internally (ie over 50% ex-cash returns). As always, this is a blackbox division and I hope it can achieve US$2 million return on an average basis.
2) The vessel operating business remains stable. The 2 vessels ought to post better results in FY 2015 since there will be no $0.6 million loss of income for dry docking next year. This will be offset by the loss of income from Singa Ace. I expect annualized 4Q 2014 shipping EBIT would give a rough indication of the core profits from this 2 vessels. Cougar Ace contributions is tiny.
3) Surprised by the acquisition of a second vessel. No information of the purchase price or charter contract was given. Net debt stands at $1 million so there are room for such opportunistic acquisitions. I expect economies of scale to benefit the Group as the fleet expands.
4) Dividend was maintained at 1 SG cents ie < 50% payout. My original thesis was either the fleet size remains and the yield gets a bump upwards OR the management retains capital for expansion. It would seem the latter is taking place and FY 2015 earnings is projected to be larger than US$8.5 million or 2.0 US cents EPS.
(Vested)
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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don't have too high expectations for this 2 ships.
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22-05-2014, 09:39 AM
(This post was last modified: 22-05-2014, 09:41 AM by valuebuddies.)
It will cost at least 80mil for 2 x 6,500 vessels. It could be really a stretch on the balance sheet, the cash available at the moment is just enough to pay for the downpayment, unless Mr Ow is planning for some private placements or to ask the exisiting shareholders for $$. Though the shipping agency businesses shown a decreased in revenue/profits and significant drop in margin, market seems to react positively perhaps due to the two new vessels (instead of 1).
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Why not loans? If the charters are yield accretive after amortization of loans and costs, 2 carriers are better than 1 isn't it?
The only problem is there is no details of the 2 contracts. So like what GG says, we can only trust Management now, until that trust is broken.
(Vested)
life goes in cycles, predictable yet uncontrollable; just like the markets, but markets give you a second chance
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My old man take is as follows:
Ow has kept SSC listed post a massive restructuring of model pre GFC.
SSC has been operating the lower risks RO-RO segment for the longest time and its fleet has been kept to a minimal for the last few years. Of course, there is a renewal of fleet post the sale of an aged vessel.
My understanding is that the RO-RO market is operated by a "cartel". SSC appears to be a "shipping trust" for bigger operators as they put in capital (alongside with bank financing) in return for long term charters to these bigger operators (asset light).
The positives here is that SSC is an non-financial engineering asset owner that eliminates the layer of fees charged by typical trust managers.
Since Ow is the owner of SSC, for him to have resumed growth in vessel ownership and take on optimal leverage for such long term charters, the risk/return profile of the fleet must have met their stringent criteria.
SSC track record has been very good - from the timely unlocking and return of wealth via the sale of the volatile bulk shipping segment and the re-purchase of Cougar's logistic operations from MYP.
We shall wait for more details on the new vessels before coming to a better analysis of the lucrativeness of the deals.
Vested
GG
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22-05-2014, 01:55 PM
(This post was last modified: 22-05-2014, 01:56 PM by Nick.)
1) I don't think the vessels will be priced at US$40 million each assuming the second vessel is similar to the first one ie they are both 10 years old. The US$40 million paid for by Ship Finance was for 6-7 years old 6,500 CEU car carrier vessels on 5 year charters. Conversely, SSC is purchasing 10 year old vessels on 15 year charters. Naturally, a longer charter will require a higher rate of return (just like bonds) and older vessels are cheaper so prices will probably be much lower than the US$40 million range. Moreover, in such sale and leaseback terms, there is always the possibility of buying low, charter low ie chartering at a lower rate in return for a lower selling price. So it is difficult to predict the rates and price until the Management reveals such information in the upcoming Annual Report.
2) Just for speculation sake, let's assume that the 2 vessels would truly cost $80 million and see whether the B/S can take it:
Let's first derive an estimate for the charter revenue.
MV Boheme
Cost: US$50 mil
Charter: US$10.6 mil for 15 years
Revenue Yield: 21.2%
Sirius Leader
Cost: US$16 mil
Charter: US$4.3 mil for 15 years
Revenue Yield: 26.8%
Ship Finance
Cost: US$40 mil
Charter: US$8.5 mil for 5 years
Revenue Yield: 21.2%
New RORO Vessel
Cost: US$40 mil (assumption)
Charter: US$8.8 mil (assuming yield of 22%)
Currently, SSC has US$17 million cash and US$19 million debt. It generates around US$10 million a year of which half is being used to repay debt. Let's assume, the acquisition is financed with 80% LTV ie US$16 mil cash and US$64 million debt at 3.5%.
Revenue: US$17.6 mil
Depreciation: US$4.0 mil (assume 20 years remaining lifespan)
EBIT: US$6.7 mil (assume current 38% margin)
Interest: US$2.3 mil
NPAT: US$4.4 mil
CF: US$8.8 mil
The Company's net debt to equity will be 100%. Though it could easily repay the debt in 6 years. So I don't think the B/S will be overwhelmed but it will be 'full' for a few years.
3) End of the day, this are all merely speculations. Without the charter and vessel date, it is difficult to make an accurate forecast. I highly doubt Mr Ow will commit himself to a value destroying deal especially since this is his circle of competence.
4) As GG pointed out, SSC is turning to a sustainable 'shipping trust' or 'capital recycling machine' for the small and niche group of car carrier operators in the world. The Group repays its debt and invests its retained profits to replenish its vessels with high value charters. The Company has been quietly expanding since GFC - acquiring US$66 million worth of vessels (Boheme and Sirius Leader), paying US$12 million for Cougar Logistic assets while divesting 2 older vessels for US$9 million. In turn, profits has been increasing steadily over the past 5 years with the dividend coverage ratio rising. The latest deal marks the doubling of its fleet capacity so it would seem the growth trajectory will continue.
5) Naturally the usual risk ie counterparty defaults remains.
(Vested)
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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