Penguin International

[brattzz]

72 directorships...365 days...🧐🧐🧐

[luckystar]

Keppel O&M has a 6.24% stake in Penguin, thats why Mr Tan is on Penguin board I believe.

[Squirrel]

on whether it is cheap...

we have the following on the balance sheet

Fixed Deposits                       $31,624
Cash and Bank Balances        $10,995
Inventories                            $20,608
Motor Launches                     $58,734

Just these alone are worth $121m. Current Market Cap is 92.5m at $0.42. We have all seen how the Motor Launches fare when they are sold. Historically that results in booked gains.

Suffice to say these are items that one wouldn't really place a discount on (except for inventories). Even if the company goes on liquidation now, it does seem like shareholders will be compensated beyond the current traded price. That to me means cheap...

Share buybacks is a good question though. Probably can ask during the AGM.

[touzi]

We have all seen how the Motor Launches fare when they are sold. Historically that results in booked gains.

I think part of the reason was Penguin can afford to wait for the right offer. In your liquidation scenario, this will not be the case. Don't get me wrong, I think Penguin is a wonderful stock, just that it is not "dirt cheap" at the current price, in my opinion.

[Squirrel]

We have all seen how the Motor Launches fare when they are sold. Historically that results in booked gains.

I think part of the reason was Penguin can afford to wait for the right offer. In your liquidation scenario, this will not be the case. Don't get me wrong, I think Penguin is a wonderful stock, just that it is not "dirt cheap" at the current price, in my opinion.

It's OK, everyone is entitled to their own opinions. I choose to believe everyone posts here in the spirit of sharing.

[chialc88]

Good morning valuebuddies.



1. We all know that Penguin is a good stock,
    some even says wonderful stock.

2. We all know that Penguin is not expensive,
    some says cheap
    and some even says dirt cheap.

3. We also know that Penguin is a extremely prudent company,
    zero debt,
    selling inventories during extreme crisis above cost, 
    and moving forward, even if there is another crisis (touch wood),
    we know that this little bird will survive.

4. As one of our favourite valuebuddy said:
   You don't need to pick all the top winners.
   You just need to avoid the loser.

   I feel we can kind of concluded that Penguin is not a loser.

What do you think?

Will you gives this little birds a bit more time to show you it's move?






To our 6532 vested valuebuddies,  the recovery had just began.
Temasek loves Penguin.
Will you give it more time to fly?

[karlmarx]

Penguin is still in growth mode.

Profits are plowed back into building more ships, and buying 8% of MPM. Given the drought in dividends over the past years, and the good profits this year, the pay-out ratio could have been much higher.

If shareholders are not amply rewarded with dividends during the good years -- and they are also not rewarded during the poor years -- then when can they expect to be rewarded?

If the reward to shareholders is capital appreciation, then shareholders should be mindful of the cyclical nature of the business.

[chialc88]

Thank you karlmarx.

Before we begin,  good morning to all valuebuddies.
It's a wonderful way to be woke up by the birds and the bees
sun shinning yet the weather is cool.

Thank you valuebuddy karlmarx again for your great piece of analysis done last year.
(Link to an excellent assessment of Penguin in Oct 2018 by karlmarx)

I always says how much I appreciate valuebuddies in shaping my investment journey.
Your post in Oct 2018 is an example of how I benefited from valuebuddies.com

Your assessment based on Penguin past performance confirmed that Penguin is a prudent company.
Penguin's management does not like debt.
They maintain adequate liquidity which will keep Penguin out of any financial danger.
You concluded by saying that
   If management continues to behave conservatively, ... Penguin will still be around in the next ten years.

With your assurance, it's no brainer for me to collect it's stock a bit more aggressive.
(stock means shares aka not it's boats/inventory).

---

After we solved the piece on sustainability of Penguin,
next is to look at it's business potential.
Unfortunately, you did not elaborate further.
I guess, at Oct 2018, there is still no clear indicator on it's business growth yet.

Today, we understood that Penguin had been growing recently and is still in growth mode.
(care to elaborate it's growth engine?)

now, with the new data,
we can calculate it's debt, ROA, FCF, dividend and dividend yield, cash and cash ratio, management compensation vs profit,
all these financial metrics are looking better than last year.

E.g. FY18 dividend is 1.25 cents vs 0.45 cents in FY17
       (xd 15 May 2019)

---

What we know is Penguin should survive for another 10 years.
It's in growth mode.
It's PE is 6 and PB is 0.6 with 1.25 cents dividend coming.

your call?

[karlmarx]

There are three broad areas where a company may allocate its capital:
1. Saving it to increase its financial security
2. Spending it on growth
3. Distributing it to shareholders as a reward

Past and present data has shown that Penguin has focused its resources on 1 and 2, which means very little left for 3. In other words, the lack of dividends is the price that shareholders are paying for growth and stability. Penguin is in growth mode because it is what Jeffrey Hing wants to do.

Some of the more adventurous companies sacrifice 1 to satisfy 2 and 3. And some do this aggressively by using loans.

I don't suppose there is a correct weightage of capital allocation to be followed -- there are pros and cons to over-weighting one rather than the other -- but it should be noted that there are implications for the decisions that management makes. For (prospective) shareholders of a particular company, being aware of how the company allocates its capital will give them a more realistic risk/reward expectation.

For Penguin shareholders, this means not expecting bumper special dividends -- even on good years -- for reasons mentioned. Though they are certainly welcome.

In any case, given the rather adequate level of management compensation in general, few SMEs have an interest in putting a high priority on rewarding shareholders. 

This is also the case at the individual level, where aspiring wealth accumulator promote a high saving rate, which is then used to purchase stocks for growing income/wealth. These people also eschew wasteful spending on items such as cars and gourmet coffee, which is the corporate equivalent of dividend distribution (money that you're not going to see again).

---

Although Penguin is likely to still be around in the next 10 years, the business -- and the value of the business -- of Penguin is not certain. So a shareholder could be holding the stock for 10 years, receive some small dividends along the way, and then see that the share price has not changed much. Or it could. I don't know.

SPH is another business that I think will still be around in the next 10 years. Vicom is yet another. But which of these will give the shareholder the greatest return? Being able to survive is only one of the many ingredients necessary for a good stock, and therefore does not entirely signal good returns. 

---

I have little to offer on the prospects of Penguin. But my thought on ship building is that it is a generally difficult business. 

On the demand side, there is no question that there will be demand for passenger ferries and mid-sized ships of varying industrial/military functions. The issue for Penguin is how much it can benefit from these demand. Over the past 10 years -- where there are both good and bad years -- the returns generated by Penguin does not seem compelling. Shareholders (and prospective shareholders) need to ask themselves why this is the case, and why the next 10 years will be any different.  

On the supply side, there is little in terms of product/technology differentiation, which makes the market very competitive. I suppose it is the same for building a house; I will choose the lowest cost bidder who can provide the highest quality. We can argue that Penguin produces ships of reliable quality, and its financial strength makes it an obvious choice for customers; both of which means Penguin may possess some edge over its competitors. But this does not mean that potential customers will not use competing bids to haggle for lower prices;  so Penguin is not immune to the effects of competition.

There is also the issue of the long-lead time from signing of order, building of vessel, and collection of payment upon delivery. Market conditions can change drastically between signing and delivery. Whether Penguin is protected from negative market conditions depends on the quality of customers it has, and the payment terms on contract. Are a large majority of Penguin's customers the Singapore government? If yes, cheers. If not, who are the larger customers, and what is their ability to pay on delivery?  On payment terms, how much deposit does Penguin require from its customers? And are they expected to pay progressively, along with the percentage of building completion? Certainly, different customers will get different terms. Perhaps some of the VBs here can shed some light on this.

Personally, I have no idea to the kind of customers and contracts that Penguin is exposed to, which means I am ignorant of material risks that they are exposed to. Since I have no idea on the material risks involved, it is not possible to determine whether the market price of Penguin is attractive. Insisting otherwise will be equivalent to me placing a bet on Fulham against an unknown opponent for a 2 to 1 payoff. Unless, of course, I am feeling particularly speculative, and wish to bet that improving stock market and business sentiments will lift its share price.

[Squirrel]

There are three broad areas where a company may allocate its capital:
1. Saving it to increase its financial security
2. Spending it on growth
3. Distributing it to shareholders as a reward

Past and present data has shown that Penguin has focused its resources on 1 and 2, which means very little left for 3. In other words, the lack of dividends is the price that shareholders are paying for growth and stability. Penguin is in growth mode because it is what Jeffrey Hing wants to do.

Some of the more adventurous companies sacrifice 1 to satisfy 2 and 3. And some do this aggressively by using loans.

I don't suppose there is a correct weightage of capital allocation to be followed -- there are pros and cons to over-weighting one rather than the other -- but it should be noted that there are implications for the decisions that management makes. For (prospective) shareholders of a particular company, being aware of how the company allocates its capital will give them a more realistic risk/reward expectation.

For Penguin shareholders, this means not expecting bumper special dividends -- even on good years -- for reasons mentioned. Though they are certainly welcome.

In any case, given the rather adequate level of management compensation in general, few SMEs have an interest in putting a high priority on rewarding shareholders. 

This is also the case at the individual level, where aspiring wealth accumulator promote a high saving rate, which is then used to purchase stocks for growing income/wealth. These people also eschew wasteful spending on items such as cars and gourmet coffee, which is the corporate equivalent of dividend distribution (money that you're not going to see again).

---

Although Penguin is likely to still be around in the next 10 years, the business -- and the value of the business -- of Penguin is not certain. So a shareholder could be holding the stock for 10 years, receive some small dividends along the way, and then see that the share price has not changed much. Or it could. I don't know.

SPH is another business that I think will still be around in the next 10 years. Vicom is yet another. But which of these will give the shareholder the greatest return? Being able to survive is only one of the many ingredients necessary for a good stock, and therefore does not entirely signal good returns. 

---

I have little to offer on the prospects of Penguin. But my thought on ship building is that it is a generally difficult business. 

On the demand side, there is no question that there will be demand for passenger ferries and mid-sized ships of varying industrial/military functions. The issue for Penguin is how much it can benefit from these demand. Over the past 10 years -- where there are both good and bad years -- the returns generated by Penguin does not seem compelling. Shareholders (and prospective shareholders) need to ask themselves why this is the case, and why the next 10 years will be any different.  

On the supply side, there is little in terms of product/technology differentiation, which makes the market very competitive. I suppose it is the same for building a house; I will choose the lowest cost bidder who can provide the highest quality. We can argue that Penguin produces ships of reliable quality, and its financial strength makes it an obvious choice for customers; both of which means Penguin may possess some edge over its competitors. But this does not mean that potential customers will not use competing bids to haggle for lower prices;  so Penguin is not immune to the effects of competition.

There is also the issue of the long-lead time from signing of order, building of vessel, and collection of payment upon delivery. Market conditions can change drastically between signing and delivery. Whether Penguin is protected from negative market conditions depends on the quality of customers it has, and the payment terms on contract. Are a large majority of Penguin's customers the Singapore government? If yes, cheers. If not, who are the larger customers, and what is their ability to pay on delivery?  On payment terms, how much deposit does Penguin require from its customers? And are they expected to pay progressively, along with the percentage of building completion? Certainly, different customers will get different terms. Perhaps some of the VBs here can shed some light on this.

Personally, I have no idea to the kind of customers and contracts that Penguin is exposed to, which means I am ignorant of material risks that they are exposed to. Since I have no idea on the material risks involved, it is not possible to determine whether the market price of Penguin is attractive. Insisting otherwise will be equivalent to me placing a bet on Fulham against an unknown opponent for a 2 to 1 payoff. Unless, of course, I am feeling particularly speculative, and wish to bet that improving stock market and business sentiments will lift its share price.

I would have to respectfully disagree with what you are saying on multiple points..

- there is a fourth way to allocate capital, which is to set it aside for potential opportunities that comes the way of the company. Why else would Berkshire Hathaway hold onto so much cash? Both Charlie Munger and Warren Buffett love to have cash around when opportunities presents themselves.
- you compare individual waste spending on cars and gourmet coffee to be the same as corporate distributing dividends. In my humble opinion, these are just two very vastly different acts! How can they be lumped together as the same? They serve absolutely different purposes. Period..
- you made another analogy of making a blind bet on Fulham against an unknown opponent. If it’s me, I won’t place it as well because it is second bottom of the league table! Remember the first rule? Don’t lose money. Remember the second rule? Don’t forget the first rule. This in itself is another bizarre analogy. Penguin’s balance sheet speaks for itself with nearly zero debt and low PB ratio. Is it akin to placing a bet on Fulham? Definitely no because you stand to lose everything on the bet but in the stock market, there is skewed returns to the upside. Especially in this case being buffered on the downside by cash, inventory etc.
- lastly if you think this is purely a shipbuilding business which you have analyzed above do think twice. Take a good look at their latest AR and see where profits are coming from

I have seen better analysis from you prior and am thankful for it. Honestly, in recent posts you seem to log in and proceed to simultaneously bash multiple stocks on the way out. Is it because you think that valuations in general are fat at the moment? What stocks would you think are value buys now? Just curious what stocks currently satisfy your criteria of understanding all material risks involved and thus would not be akin to blind betting and speculation. I believe that would greatly benefit fellow valuebuddies. You must have done something right to get 50 recommendations on your posts. So would be great to hear more.