Penguin International

[valuebuddies]

I have written an article on the company, with similar theme. A theme of simplicity, with only common ratios, and common senses.

All comment are welcomed. Thanks

(vested)

It must be one of the largest holding of Mr. Moderator

[josephyeo]

My thoughts on Penguin Internation.

It appears to me that Penguin today is different from the Penguin of yesteryears. In the last 2 years we see a huge jump in both revenue and profits. Below are some figures:

Revenue 2011 - S$80.5
2012 - S$85.7
2013 - S$110.3
2014 - S$164.8

Profit 2011 - S$9.7 mil
2012 - S$4.9 mil
2013 - S$16.1 mil
2014 - S$30.1 mil

As seen from above, it is quite clear that the company is now on a higher platform. It seems that the trigger point was in year 2010 where the company took a huge loss of S$62.3 mil. It seems like a kind of "cleaning up" in which non performing subsidiaries were disposed off. This in turn allow the company to fully focus on the businesses which they know best.

Company has no debts.

Company has a huge cash horde of S#37.4 mil

Company has increased it's dividend to 1cts (ordinary cum special), this gives a yield of 5% based on price of 20cts per share.

(I am vested)

[CityFarmer]

As seen from above, it is quite clear that the company is now on a higher platform. It seems that the trigger point was in year 2010 where the company took a huge loss of S$62.3 mil. It seems like a kind of "cleaning up" in which non performing subsidiaries were disposed off. This in turn allow the company to fully focus on the businesses which they know best.

There were happenings in both 2010, and 2011.

In 2010, the "huge loss" was triggered by termination of contracts from Abu
Dhabi National Oil Company (ADNOC).

In 2010, and 2011, the company refined its strategy, to divest retail businesses, and focus on corporate customers. Divestment of Singapore retail ferry, as well as loss-making middle east business, were few of re-alignments.

After that, the strategy worked till 2014, and seems working in 2015.

(vested)

[valuebuddies]

As seen from above, it is quite clear that the company is now on a higher platform. It seems that the trigger point was in year 2010 where the company took a huge loss of S$62.3 mil. It seems like a kind of "cleaning up" in which non performing subsidiaries were disposed off. This in turn allow the company to fully focus on the businesses which they know best.

There were happenings in both 2010, and 2011.

In 2010, the "huge loss" was triggered by termination of contracts from Abu
Dhabi National Oil Company (ADNOC).

In 2010, and 2011, the company refined its strategy, to divest retail businesses, and focus on corporate customers. Divestment of Singapore retail ferry, as well as loss-making middle east business, were few of re-alignments.

After that, the strategy worked till 2014, and seems working in 2015.

(vested)

Huge loss because of termination of contracts? So it does seems that Penguin is operating on a very risky approach in order to secure orders? What about the current situation where oil prices been heading south, more contracts to be terminated? More huge losses?

[BlueKelah]

As seen from above, it is quite clear that the company is now on a higher platform. It seems that the trigger point was in year 2010 where the company took a huge loss of S$62.3 mil. It seems like a kind of "cleaning up" in which non performing subsidiaries were disposed off. This in turn allow the company to fully focus on the businesses which they know best.

There were happenings in both 2010, and 2011.

In 2010, the "huge loss" was triggered by termination of contracts from Abu
Dhabi National Oil Company (ADNOC).

In 2010, and 2011, the company refined its strategy, to divest retail businesses, and focus on corporate customers. Divestment of Singapore retail ferry, as well as loss-making middle east business, were few of re-alignments.

After that, the strategy worked till 2014, and seems working in 2015.

(vested)

Huge loss because of termination of contracts? So it does seems that Penguin is operating on a very risky approach in order to secure orders? What about the current situation where oil prices been heading south, more contracts to be terminated? More huge losses?

Just like the property counters who have cashed in on the property boom past couple years and are currently TOP with bountiful profits, shipbuilding companies have had a good run the past couple years as well.

Now that the commodity and shipping boom is over, the industry is going into the lows of the cycle. Given Penguin's short build cycle of half year, any effects from the drop in oil price since november should be filtering through to its order book pretty soon and should be evident in the financials in second half of the year. Penguin may have had its best years gone by and future may hold some lean years ahead, just like the many "undervalued" property counters around.

However it does seem like the recent descent in share price is due to poor oil sentiment more than anything else. Should the oil price recover quickly, Penguin share price could be back to >25c in a blink.

Think currently the BB are having a field day pumping YZJ now

[bear]

As seen from above, it is quite clear that the company is now on a higher platform. It seems that the trigger point was in year 2010 where the company took a huge loss of S$62.3 mil. It seems like a kind of "cleaning up" in which non performing subsidiaries were disposed off. This in turn allow the company to fully focus on the businesses which they know best.

There were happenings in both 2010, and 2011.

In 2010, the "huge loss" was triggered by termination of contracts from Abu
Dhabi National Oil Company (ADNOC).

In 2010, and 2011, the company refined its strategy, to divest retail businesses, and focus on corporate customers. Divestment of Singapore retail ferry, as well as loss-making middle east business, were few of re-alignments.

After that, the strategy worked till 2014, and seems working in 2015.

(vested)

Huge loss because of termination of contracts? So it does seems that Penguin is operating on a very risky approach in order to secure orders? What about the current situation where oil prices been heading south, more contracts to be terminated? More huge losses?

This is indeed a very valid concern for shareholders regarding the dangers of customers terminating their contracts with Penguin in 2015,due to extreme weak oil outlook and subsequently possibility of large reduction in capex by offshore producers leading to abrupt cancellation.
However,I believed management probably already have their interests covered under the terms of contact with customers given their unpleasant experience with the Abu Dhabi customers few years ago.
This is perhaps one of the questions that shareholders can ask during the AGM,regarding their strategy to protect the company profits in the events of irresponsible customers who backed out of contract agreements.However,I am of the view of such counterparty risk is not only confined to the middle eastern customers,but to all possible customers in various regions.
I am not sure the reason for management ultra conservatism in terms of their debt-free balance sheet as well as their lack of dividend policy(their priority is a strong balance sheet I guess) a result of the setback faced that year due to damages by contract cancellation.Suppliers still need to be paid even though rogue customers backed out from cancellation.There's a saying "once bitten,twice shy".

(Vested)

[Bubbachuck]

Just a quick question. Is Triyards Holdings one of its competitors?

[shawn_sass]

I have written an article on the company, with similar theme. A theme of simplicity, with only common ratios, and common senses.

All comment are welcomed. Thanks

(vested)

Hi CityFarmer,

Thanks for the write-up, I wrote something similar and was comparing notes.

Would like to add some details:
Jun-2013: 50th FLEX was completed (FLEX 38 for FEMCO, utilized in Russia)
Jan-2015: 83rd FLEX was completed (FLEX 40SL for Malaysian owner)
*This represents a build of 33 FLEX crewboats in 19 months, or about 21boats/year*
In AR 2013, Penguin management claimed "...with more than 20 crewboat completions a year, we are also the world’s most prolific builder of crewboats." I believe they have delivered and executed what they promised in 2014. FY2014 EPS was at 4.56cents on the back of the 20 boats/year prediction. Kudos to them for achieving this.

Jun-2015: 100th FLEX to be completed. *This represents a build of 17 FLEX crewboats in 5-6 months, or about 30-35boats/year*. MD James Tham mentioned in his interview that “We will roll out our 100th Flex crewboat by mid-2015, and we intend to deliver 40 to 50 crewboats a year for our own fleet and for others,”
Looking ahead, 1H2015 looks pretty set and we should expect to see the completion of FLEX crewboats up to the predicted 100 mark.

The worry is what Penguin's order book will look like after the 100th FLEX crewboat and if the oil market sentiment will discourage repeat orders or unnecessary spending by customers in a cyclical and now seemingly volatile environment. This will be my major concern and keeping a close watch.

P.S. First post. New on VB. Cheers

[Yoyo]

Per AR 2010 Joint Message from your Chairman and your MD

“Iceberg Lessons” Then on 25 June 2010, an unexpected “iceberg” got in our way: Our shipyard received a notice of termination from Abu Dhabi National Oil Company (ADNOC) for the construction of two prototype 47- metre Safety Standby Rescue Vessels (SSRVs) designed by Norway’s VikSandvik (now part of Wartsila group). The shipbuilding contract was entered into in August 2007 and the vessels were completed in early 2010. As a shipbuilder, Penguin had faithfully constructed the two vessels according to class-approved and client-approved drawings provided by the client’s designer. We are currently evaluating our legal options and will update shareholders in due course. The contract with ADNOC required us to refund upon termination the payments received for the SSRV construction, resulting in a reversal of shipbuilding revenue of $32.3 million and a reversal of $5.3 million of profit in 2Q2010. Such refund guarantee arrangements are common with state-owned oil companies. As a prudent approach, we have also made a total non-cash provision of $26.7 million for the diminished value of the two SSRVs – for which we are currently evaluating recovery options.

IMHO - The customer is a state-owned oil company. Vessel is SSRVs (specially customer tailored - has low recovery value). Given the biz volume then in 2010, Penguin is in need of such big contract win to keep its shipyard occupied.

With more contract win and orders from repeated customers (more than 40 scheduled Flex deliveries in 2015), and the relative more ease of the Flex reselling to other customers or transfer to internal fleet for chartering (should there be any order termination), such kind of huge damage experienced in 2010 is unlikely to repeat.

Queries:
1. Do any VB has any idea whether Penguin is proceeding with legal action iro the above ADNOC terminated contract? If not, perhaps we can ask for an update in the AGM.
2. If Penguin is looking at 40 scheduled deliveries in 2015, compared to the 15 deliveries in 2013, does this meant that its expanded capacity is more than 40 annually.? PS: For the past few years, we have been told that Penguin can handle more than 20 vessels construction annually.

[bear]

Per AR 2010 Joint Message from your Chairman and your MD

“Iceberg Lessons” Then on 25 June 2010, an unexpected “iceberg” got in our way: Our shipyard received a notice of termination from Abu Dhabi National Oil Company (ADNOC) for the construction of two prototype 47- metre Safety Standby Rescue Vessels (SSRVs) designed by Norway’s VikSandvik (now part of Wartsila group). The shipbuilding contract was entered into in August 2007 and the vessels were completed in early 2010. As a shipbuilder, Penguin had faithfully constructed the two vessels according to class-approved and client-approved drawings provided by the client’s designer. We are currently evaluating our legal options and will update shareholders in due course. The contract with ADNOC required us to refund upon termination the payments received for the SSRV construction, resulting in a reversal of shipbuilding revenue of $32.3 million and a reversal of $5.3 million of profit in 2Q2010. Such refund guarantee arrangements are common with state-owned oil companies. As a prudent approach, we have also made a total non-cash provision of $26.7 million for the diminished value of the two SSRVs – for which we are currently evaluating recovery options.

IMHO - The customer is a state-owned oil company. Vessel is SSRVs (specially customer tailored - has low recovery value). Given the biz volume then in 2010, Penguin is in need of such big contract win to keep its shipyard occupied.

With more contract win and orders from repeated customers (more than 40 scheduled Flex deliveries in 2015), and the relative more ease of the Flex reselling to other customers or transfer to internal fleet for chartering (should there be any order termination), such kind of huge damage experienced in 2010 is unlikely to repeat.

Queries:
1. Do any VB has any idea whether Penguin is proceeding with legal action iro the above ADNOC terminated contract? If not, perhaps we can ask for an update in the AGM.
2. If Penguin is looking at 40 scheduled deliveries in 2015, compared to the 15 deliveries in 2013, does this meant that its expanded capacity is more than 40 annually.? PS: For the past few years, we have been told that Penguin can handle more than 20 vessels construction annually.

Hi Yoyo

With regards to your question on the expanded capacity of Penguin,with reference to
http://www.penguin.com.sg/our-subsidiari...indonesia/
"With a dynamic workforce comprising over 1,000 personnel across all trades, PTKS is capable of delivering more than 30 Flex crewboats annually and undertaking a variety of repair and conversion activities concurrently."
Together with its Singapore shipyard expanded capacity is definitely more than 40.
Well,the concern is the strength of the demand for this and next year,for we know the supply is of no issue.