Penguin International

[Squirrel]

Hi All

This is a very interesting counter that I am currently looking into and trying to figure out. Would like to check with the seasoned valuebuddies here on some questions.

I see that there are mentions of how many crew boats or inventories that the company is holding. There are even mentions of the vessel names like Pride, Victory, Redeem, Renewal or something like that. How do you look for information regarding their inventory or PPE vessels?

Much appreciated if anyone could help. I would try to share any meager analysis I can come up with after.

Thanks in advance!

[CY09]

Hi Squirrel,

We refer to the company website to find the idle vessels

Link: http://www.penguin.com.sg/vessel-specs/

[dydx]

Hi Squirrel,

We refer to the company website to find the idle vessels

Link: http://www.penguin.com.sg/vessel-specs/

The 'Vessel Specs' page in Penguin's company website shows -
(1) the boat models (including crewboats, security boats, and ferries; with all designs owned by Penguin) which the group's shipyard division is currently building or capable of building as newbuilds for sale, under (a) signed contracts with buyers and/or (b) self-funded stock boats (limited by a few boats at any point in time) being built in anticipation of new sale contracts with potential buyers to be signed within a reasonable period of time.
(2) the crewboats (comprising the current boat models as above, and past models no longer being built) for charter held under subsidiary Pelican Group, and passenger ferries for charter held under the parent company. It merely shows the 2 charter fleets and the boats owned in them, and it does not show which boats are currently idle without charter.

The page does not include other aluminium boats being built by Penguin, backed by signed contracts, under special projects (e.g. the 2 fireboats being built for our SCDF) or based on 3rd-party designs.

Do note that for the crewboats and ferries for charter under (2) above, Penguin regularly sells some of them to upgrade its charter fleet, or when market demand for crewboats or security boats is high. When such sales of vessels happen, the related gains realised would be reflected as 'Other Operating Income' under Penguin's quarterly P&L statements.

[BlueKelah]

Hi All

This is a very interesting counter that I am currently looking into and trying to figure out. Would like to check with the seasoned valuebuddies here on some questions.

I see that there are mentions of how many crew boats or inventories that the company is holding. There are even mentions of the vessel names like Pride, Victory, Redeem, Renewal or something like that. How do you look for information regarding their inventory or PPE vessels?

Much appreciated if anyone could help. I would try to share any meager analysis I can come up with after.

Thanks in advance!

This is a small company operating locally and has some yards making vessels servicing a niche market. Most of the time the share price and business/order book will track oil price trend. Dividend payout is pretty bad if you are looking for yield. No need to analyse too much, just use as proxy if you are betting on oil price rise. Personally I prefer CSE Global if you are looking for an O&G counter, it has more liquidity and more generous mgt..

[chialc88]

@Squirrel, waiting patiently for your analysis.
If possible, try to cover all 4 areas, financial, business, investment and especially asset structure.

@BlueKelah, CSE Global looks good too.

The merits for Penguin is spell out clearly in latest AR
(for those very very busy valuebuddies, just read page 13)
link

The evident that Penguin is turning up (similar to CSE Global story) is clearly in latest result
link

For very very busy valuebuddies, look at
Page 1 & 2: take note of the profits and do a quick calculation of profit margins. 
                   especially net profit margin (compare to CSE Global if you prefers)

Page 4: point #3 is extremely interesting on how Penguin got so much cash and profits.
                    really amazing. not many company has such a business model.

Page 7: My favourite yardstick on a recovering business is its ability to pay down loans.
                   (compare to CSE Global if you are very free)

Last but not least, the one that make all valuebuddies swallow their saliva is in
Page 15.

CSE Global is a good company, so does Penguin.

I bet on Penguin as the turnaround story is getting from blur blur to clearer and clearer each Qtr.

从那遥远海边慢慢消失的妳
本来模糊的脸竟然渐渐清晰

[karlmarx]

Penguin has an adequately liquid balance sheet which should keep the company out of any financial danger. However, it seems that is also the only thing that can be said regarding its investment merits. Let's look at some common metrics.

---

1) Penguin's management does not like debt. In its recent history, it has never taken on debts amounting to more than 10% of its assets. Their prudence has kept them safe during GFC in 2009, and the oil glut in 2014. If management continues to behave conservatively, I am quite certain Penguin will still be around in the next ten years. But the value of a company cannot grow if it is just standing still. How far can this boat take you?

Loan to Asset
FY08: 10.77%
FY09: 8.84%
FY10: 10.01%
FY11: 4.61%
FY12: 0.00%
FY13: 0.00%
FY14: 0.00%
FY15: 6.50%
FY16: 5.34%
FY17: 1.94%

Average: 4.80%

---

2) A measure of business performance is in the returns that it can generate. It is the reason investors put money in any business. How much returns has Penguin generated with its assets? There are good and bad years. If held over the long-term, it looks poor. But if you held it for trading over the short-term? I guess it'll depend on your luck. 

Return On Asset
FY08: 5.23%
FY09: 3.47%
FY10: -49.84%
FY11: 22.25%
FY12: 2.58%
FY13: 9.81%
FY14: 15.07%
FY15: 9.68%
FY16: -2.00%
FY17: -2.57%

Average: 1.37%

---

Ship building is a capital intensive activity. Like any other manufacturing activity, near-capacity utilisation is necessary lower per unit cost. Since the demand for Penguin's products is not consistent, there will be times when its massive PPE is sitting idle, as the ROA figures show. But if Penguin could price its products high enough during boom years to compensate for lull years, the average return could still be sufficiently attractive.

3) From the free cash flow and dividend angle, it looks just as inconsistent as the ROA. FCF was positive in only 3 of the 10 years, and dividends paid in only 4. There are companies with negative FCF and low dividends, yet have been able to generate positive stock market returns for their investors. I'm not too sure if Penguin could be one of them. 

Free Cash Flow               Dividends (S$, in thousands)
FY08:  -40,824                    0
FY09: -6,141                       0
FY10: -2,692                       0 
FY11: 19,271                      0
FY12: 9,658                        0
FY13: -10,891                     0
FY14: -2,201                    3,303
FY15: -7,092                    6,605 
FY16: -13,759                  1,651
FY17: 27,914                      0

Total: -26,757                 11,559

---

4) Perhaps Penguin can payout some of its large amount of cash it is holding? It probably doesn't need so much, right? Unfortunately, Penguin has always had such high levels of cash, in absolute amount, and as a percentage of its equity. The high cash level act as a source for working capital -- when the high tide comes -- and liquidity to guard against bad times, like the recent one.

Cash ($000)           as a % of Equity
FY08: 33,910              29.81%
FY09: 25,301              19.98%
FY10: 13,219              20.42%
FY11: 30,091              33.12%
FY12: 37,115              39.26%
FY13: 42,628              38.40%
FY14: 37,373              27.05%
FY15: 37,297              24.63%
FY16: 18,675              12.79%
FY17: 39,077              27.55%

---

5) Or maybe, management is financially conservative by maintaining high cash, low debt, and low dividends, just so it can continue to draw a nice salary. Is the management worth paying this much for? It is hard to say.

Management Compensation         Comprehensive Income  ($000)
FY08: 4,026                               9,141
FY09: 2,710                               6,794
FY10: 2,259                              -61,905
FY11: 4,151                              26,672
FY12: 2,314                              3,680
FY13: 3,584                              16,170
FY14: 4,600                              30,472
FY15: 3,819                              19,869
FY16: 2,142                              -3,739
FY17: 2,276                              -4,425

Total: 31,881                             42,729

---

Regardless of how a business performs, its stock could still be undervalued if it is cheap enough relative to its valuation metrics and future prospects. Is Penguin undervalued? It depends on what happens in the future. And with regards to that, I am no shipping expert, so your guess is probably better than mine. 

In any case, all of these are just my personal opinion of the stock. And I may be completely wrong in my assessment. It is not my intent to offend the sensibilities of (would be) Penguin investors.

[chialc88]

Is Penguin undervalue?

A good questions but unfortunately I do not have the crystal ball too.



I somehow felt that Penguin is a reasonably good stocks.

Given that Penguin management is very conservative
and we are quite certain that it will still be around in next 10 years,
I feel that it's worth investing some $.

Thank you K for the quick analysis.
Wish you luck in your investment too.

Have a nice weekend.

[Squirrel]

Wow, just mentioning the word analysis and people came out in droves! That’s very good! Many aspects were covered above including historical ratios. This is not a stable business and diving further into historical ratios is not what I intend to do. (Not that I could provide anything of incremental value)

There are a few things that I personally look at before I buy a stock. I hope to be able to buy a value growth stock. That’s tough to come by and by the definition, it also means that one have to jump in before the turn and hold on for parabolic returns. This is a very interesting company and I do have more questions along the way.

Value perspective

- PB ratio of 0.49 at 33 cents last close.
- how real is this? The latest balance sheet shows that the biggest bulk comes from PPE and Inventory. Out of the 74m in PPE, 52m comes from Motor Launches. My understanding here is that since the company effectively builds the very boats that they hold under PPE, they sell it inter segment and record profits against the “sale” from shipbuilding to chartering. So even though the inter segment profits are eliminated via adjustments, the motor launches are held at the sale price. Could someone please confirm this assumption? I had thought that the boats should have been held at the cost that the boats were built at but that didn’t explain the inter segment profits. Currently, the book value of the boats seems conservative as evidenced from their sale of 7 ships from their operating fleet. That resulted in a transfer to assets held for sale of 19.555m (cost) and 3.458m (accum depre). The resulting sale garnered $5.5m in profits in 1H18 which implies that the ships are sold above the cost that the boats were recorded on the books. In short, the balance sheet looks very real to me and in fact might hide more upside to it.

Growth perspective

- sold 7 boats from operating fleet in 2017 (I believe final PL was realized in 1H18)
- ramping up inventories and shipbuilding in 2018 as can be seen in new personnel and increased administrative costs from increase in headcount and wages
- from their website, the newest builds (Care and Courage) meets safety regulations for Malaysia and are those built for Biz class. In short targeting the “chopper swoppers” that was mentioned and following hot on the heels of the one that was most recently chartered out, Pelican Calm Flex 42X.
- the price of oil stays high and Saudi Crown Prince says that’s the Aramco IPO will happen by early 2021 and reiterated his belief that the company is worth $2 trillion. We have all seen how OPEC has been doing. Oil Majors are expected to pour into capex again after record low investments in the past few years.

I believe the management is confident of stocking up their fleet for sale and charters and hence the ramp up. All these are indicators of a turnaround and pick up in business for this company. Protection to the downside and exposure to the upside. Now seems an opportune time to buy into the company.

[chialc88]

 


Now seems to an opportunity to buy into PIL?

Jun FY16
I posted the above flying Penguin video in vb.com
Purpose is to gauge the emotion of our valuebuddies.
The feedback promptly put Penguin into my watch list.

Among all posts, I take note of money's comments on boom-burst cyclical nature of a stock.
I am also agrees with ianphoon's comments on preferring company with more certainty and of course 100% agrees that 
to win, one need not select the winners but just avoid the losers.
> My question to ianphoon is whether Penguin is a loser or winner?

Q3 FY16
dydx observed something strange - Penguin is hiring.
yoyo speculate that it's Police Coast Guard project
iceage checked GeBiz and coolken163 recalled that this is similar to how TTJ benefited from Government projects
> I am thinking: Really? Something interesting. Wow, there are really some serious valuebuddies taking good care of Penguin

Mar FY17
1. CY09 mentioned that nobody seems to be watching Penguin's full year result.
2. Everyone (including K) concluded a valuable lesson learn by observing Penguin going from under-value to became over-value as the business environment change.
> I told myself Penguin is getting hotter despite its loss making result


MayFY17
CY09 reported good Q1 result.
dydx confirmed that selling of older boat with a realised $1,500k gain.
K mentioned that Penguin managed to reduce inventory at above cost aka unlikely suffer the same fate as other OSV owners and operators.
> Stock price is moving and I am hyping up my energy erh $$$.

JulFY17
dydx reported bad news on Triyards and many valuebuddies weighted in too.
> I'm in celebrating mood. This is the moment I'd been waiting for.

AugFY17-now
Streaming in of good news, every now and then.
except the loan to Sean Lee aka buying a board seat on a steel boat company,
still not sure whether it make business sense?
> I tell myself don't care so much. 
> Vested and will continue to buy more as the picture getting clearer and clearer



Updated on 17 Sep 2018

Penguin, the world's largest builder of mid-sized crew boats, is building several of its flagship Flex Fighter range of high-speed armoured security vessels for anti-piracy operations off the coast of Nigeria. 
link

Wish all valuebuddies a fulfilling and fruitful investment journey.
Thank you for reading.

[chialc88]

PHOTO: SINGAPORE CIVIL DEFENCE FORCE

SCDF Commissioner Eric Yap launching the White Swordfish on Wednesday. 
To be deployed at the upcoming Punggol marine outpost, 
the new vessel is the SCDF's third purpose-built Rapid Response Fire Vessel.

White Swordfish can respond quickly and effectively to ship fires,
as it can reach speeds of more than 40 knots with its water-jet propulsion, 
and has powerful firefighting equipment.

Enjoy a soothing songs. 
Youth