Samudera Shipping

[Yoyo]

Non Controlling Interest NCI also known as Minority Interest MI denotes the portion of an entity net assets that is owned by the minority group. 

For a simple illustration, Company ABC is owned by Shareholder A (70%) and Shareholder B (30%).  Co ABC constitutes a subsidiary to A, and the consolidated financials of A will capture the NCI (ie B) share of the P&L (profit for the period) and BS (net asset) of ABC.

Financials of ABC, said
P&L Sales 2000, COS 1200, Expense 300 Tax 100  Gross Profit 800 NPAT 400
BS Opening Net Assets of 500, BS Closing Net Assets of 900
Proportionally, NCI share of ABC financials is 30% of the above
P&L Sales 600, COS 360, Expense 90 Tax 30  Gross Profit 800 NPAT 120
BS Opening Net Assets of 150, BS Closing Net Assets of 270 <NCI net assets movement of 120 for the period>
Assuming no other factor such as new capital injection, dividend payments, etc, the regrossed of NCI net assets movement approx the NPAT of ABC of 400. (120 / 0.30)

Using this basis, my guesstimate of Q1 SSL NPAT is 21.8 and hence 1H 43.6 With increasing shipping rate, ceteris paribus, it is not unreasonable for SSL to deliver this target.  While the 1H NPAT of 36.7 is impressive compared to last year, it does fall short of my expectation.  If my Q1 NPAT estimate of 21.8 is somewhat/approx right, then Q2 simply delivers 14.9  What could have caused such unusual showing, Q to Q deterioration despite strong positive macro?
Potentially
1. Timing of sales of aged container box, realizing gain of 1.5 other income, of which bulk in Q1 or Q2?
2. Provision for bad debts of 1.1, captured in Q1 or Q2?
3. Provision for employee benefits (ie bonus), playing catch-up in Q2 for the improved profit result?
4. Others. I don’t know, possibly my computation is flawed.

Anyway let take a look at SSL financials (Share price max at SGD cents 46)
EPS for 1H of USD cents 6.83 thus FY of 13.66 (equivalent to SGD cents 18.58),
NBV as at 1H USD cents 42.41 (equivalent to SGD cents 57.68)
thus Forward P/E of 2.5 times and Price/Book Value of 0.80

Is this good enough for you? Obviously the market thinks otherwise.  SSL indeed is the unloved one.

A small surprise though, an interim dividend of SGD cents 0.50  Management did not hand out any interim dividend in the last 20 years.  If I am management, I will rather go for bumper special dividend instead of opting for a more sizeable interim dividend. 

Just to pen down my thought.  Thinking hard whether to trim down my core vested.

[Squirrel]

@Squirrel, your earlier analysis with specific 2Q financial projections has turned out to be SPOT ON!
However the mgt has disappointed with a paltry interim dividend of 0.5 cent/share.

Thanks for the complement.

I wouldn’t say it’s a paltry sum since the full year dividend last year was only 1.05 cents. I am expecting a substantial special dividend by end of the year.

Suffice to say, if one were to buy the shares at the current price now, you would be buying into a company that is generating > 10% cash relative to your buy price per quarter. How crazy is that. And that amount would rise with higher freight rates. The year end cash balance would likely look pretty spectacular.

[Squirrel]

Non Controlling Interest NCI also known as Minority Interest MI denotes the portion of an entity net assets that is owned by the minority group. 

For a simple illustration, Company ABC is owned by Shareholder A (70%) and Shareholder B (30%).  Co ABC constitutes a subsidiary to A, and the consolidated financials of A will capture the NCI (ie B) share of the P&L (profit for the period) and BS (net asset) of ABC.

Financials of ABC, said
P&L Sales 2000, COS 1200, Expense 300 Tax 100  Gross Profit 800 NPAT 400
BS Opening Net Assets of 500, BS Closing Net Assets of 900
Proportionally, NCI share of ABC financials is 30% of the above
P&L Sales 600, COS 360, Expense 90 Tax 30  Gross Profit 800 NPAT 120
BS Opening Net Assets of 150, BS Closing Net Assets of 270 <NCI net assets movement of 120 for the period>
Assuming no other factor such as new capital injection, dividend payments, etc, the regrossed of NCI net assets movement approx the NPAT of ABC of 400. (120 / 0.30)

Using this basis, my guesstimate of Q1 SSL NPAT is 21.8 and hence 1H 43.6 With increasing shipping rate, ceteris paribus, it is not unreasonable for SSL to deliver this target.  While the 1H NPAT of 36.7 is impressive compared to last year, it does fall short of my expectation.  If my Q1 NPAT estimate of 21.8 is somewhat/approx right, then Q2 simply delivers 14.9  What could have caused such unusual showing, Q to Q deterioration despite strong positive macro?
Potentially
1. Timing of sales of aged container box, realizing gain of 1.5 other income, of which bulk in Q1 or Q2?
2. Provision for bad debts of 1.1, captured in Q1 or Q2?
3. Provision for employee benefits (ie bonus), playing catch-up in Q2 for the improved profit result?
4. Others. I don’t know, possibly my computation is flawed.

Anyway let take a look at SSL financials (Share price max at SGD cents 46)
EPS for 1H of USD cents 6.83 thus FY of 13.66 (equivalent to SGD cents 18.58),
NBV as at 1H USD cents 42.41 (equivalent to SGD cents 57.68)
thus Forward P/E of 2.5 times and Price/Book Value of 0.80

Is this good enough for you? Obviously the market thinks otherwise.  SSL indeed is the unloved one.

A small surprise though, an interim dividend of SGD cents 0.50  Management did not hand out any interim dividend in the last 20 years.  If I am management, I will rather go for bumper special dividend instead of opting for a more sizeable interim dividend. 

Just to pen down my thought.  Thinking hard whether to trim down my core vested.

Hi Yoyo, I see where you are coming from. You are assuming that the NCI would backsolve into the PAT of the subsidiary. I would tend to agree with you in most cases but the way the Indonesian parent is structured and how Indonesian companies report their financials is not really that familiar ground for me, and historically I find that the amount is nearer to gross profit instead. I honestly don’t know why.

My methodology is to use the split between sectors to get gross profit and then deduct the non related profits, expenses and tax to come to US$17.4m profits for Q1. The NCI was really a check to make sure the above method is not way off.

I do still stand by the above the figure and think that Q2 is > Q1 based on known freight rates etc. The numbers don’t line up exactly which is where I guess you have your doubts as well. The aim of the exercise was to get an early glimpse into how Samudera would perform for 1H and I believe the exercise has met its purpose for me.

[Yoyo]

I do still stand by the above the figure and think that Q2 is > Q1 based on known freight rates etc. The numbers don’t line up exactly which is where I guess you have your doubts as well. The aim of the exercise was to get an early glimpse into how Samudera would perform for 1H and I believe the exercise has met its purpose for me.

Hi Squirrel

Totally agreed that the objective to have an early peep at the SSL results have been achieved.  Thanks for your sharing and look forward to your updated exercise comes Samudera Indonesia Q3 reporting.  Market players said that we are not in the supercycle yet. Let see how far higher shipping rate can take SSL to.  Hopefully from being unloved to loved.

Congratulation to your capture of another stock ISDN (spot on), not vested as I have opted for SSL, business more easier to understand given that the tide rises all vessels in the current macro shipping development.

Keep up your good work.  Happy investing journey to you.  Looking forward to more insightful postings from you.

[Yoyo]

What causing the container ship traffic jam clogging up global trade
Trade wars, the pandemic and an accident at the Suez Canal have interrupted the rhythm of container ship movement, causing disruptions for international trade.

https://www.cnbc.com/video/2021/07/02/wh...trade.html

[Squirrel]

So we have all seen the latest results for 1H 2021. What should we be expecting next for this container shipping company? What would the company likely give out in dividends given the massive amount of cash being generated at record freight rates? Would like to share my analysis of what's to come in the following article.

https://www.thesquirrelsdrey.com/post/sa...21-results

[Behappyalways]

Earnings in the third quarter are expected to exceed the level for Q2, the Danish carrier predicted.


Maersk reveals record quarterly performance, predicts Q3 will be stronger
https://splash247.com/maersk-reveals-rec...-stronger/

Looking at Samudera Indonesia 2nd Quarter statements, Samudera Shipping probably reported lower result in 2Q vs 1Q (see non controlling interest's profit), probably 15% to 20% lower. Could be due to increased depreciation.

[Squirrel]

Earnings in the third quarter are expected to exceed the level for Q2, the Danish carrier predicted.


Maersk reveals record quarterly performance, predicts Q3 will be stronger
https://splash247.com/maersk-reveals-rec...-stronger/

Looking at Samudera Indonesia 2nd Quarter statements, Samudera Shipping probably reported lower result in 2Q vs 1Q (see non controlling interest's profit), probably 15% to 20% lower. Could be due to increased depreciation.

Hi

I don’t really think Q2 profits were less than Q1. It’s hard to explain but the NCI method is not that accurate. I have compared with past years and they won’t match exactly to actual earnings at the Singapore subsidiary level. I can’t find the reason why. The main reason why I chose to use NCI to verify the segment profits as a reference proxy to sg earnings is because of the far fetched determination that Q1 earnings was at 4-5 times earnings of the prior year. I needed additional comfort that my numbers were about right. I still believe that Q1 should be roughly US$17mil while Q2 is around US$20mil. If you strictly use the NCI of the latest released Samudera Indo results, you will backsolve to a number that is less than the SSL’s released results.

Apologies I am not accounting trained, and can’t really give you an explanation of why that is happening.

[Yoyo]

Non Controlling Interest NCI also known as Minority Interest MI denotes the portion of an entity net assets that is owned by the minority group. 

Using this basis, my guesstimate of Q1 SSL NPAT is 21.8 and hence 1H 43.6 With increasing shipping rate, ceteris paribus, it is not unreasonable for SSL to deliver this target.  While the 1H NPAT of 36.7 is impressive compared to last year, it does fall short of my expectation.  If my Q1 NPAT estimate of 21.8 is somewhat/approx right, then Q2 simply delivers 14.9  What could have caused such unusual showing, Q to Q deterioration despite strong positive macro?
Potentially
1. Timing of sales of aged container box, realizing gain of 1.5 other income, of which bulk in Q1 or Q2?
2. Provision for bad debts of 1.1, captured in Q1 or Q2?
3. Provision for employee benefits (ie bonus), playing catch-up in Q2 for the improved profit result?
4. Others. I don’t know, possibly my computation is flawed.

SI - Samudera Indonesia
SSL - Samudera Shipping Ltd
NCI - non-controlling interest

Confirmed point 4.  My computation is flawed.  I have merely considered SI ownership of SSL, while overlooked on SSL NCI.  The SSL NCI will roll into SI NCI in SI consolidated numbers.  There is no way to determine this value till it is disclosed in SSL 1H2021 results showing SSL NCI share of NP of 1.2m.

Assuming 0.6m SSL MI share of NP in Q1, my revised Q1 NP of SSL is 20.1m instead of 21.8m.  Need to deduct 0.6m from Q1 NCI net asset movement of 7.6m before regrossing the resultant to arrive at SSL NPAT for owner.

Thus, my NP guesstimate is 20m for Q1 and 17m for Q2, amended from previous 21.8m for Q1 and 14.9m for Q2 (much less scaring QtoQ fluctuation).  This quite mirror the QtoQ performance of SI of 21m for Q1 and 18m for Q2.

A partial review of SI results:
1.  Note 26 Cost of Sales.  Depreciation has increased from 7.6m in Q1 to 16.9 in 1H, QtoQ increase of 1.7m (as highlighted by Behappyalways)
2.  Note 26 Cost of Sales.  Last item classified as Others has increased from 3.2m in Q1 to 9.5m in 1H, QtoQ increase of 3.1m (probably caused by port congestion)
3.  Note 25 Revenue.  Revenue has increased from 128m in Q1 to 274m in H1, QtoQ increase of 18m.

[Squirrel]

Non Controlling Interest NCI also known as Minority Interest MI denotes the portion of an entity net assets that is owned by the minority group. 

Using this basis, my guesstimate of Q1 SSL NPAT is 21.8 and hence 1H 43.6 With increasing shipping rate, ceteris paribus, it is not unreasonable for SSL to deliver this target.  While the 1H NPAT of 36.7 is impressive compared to last year, it does fall short of my expectation.  If my Q1 NPAT estimate of 21.8 is somewhat/approx right, then Q2 simply delivers 14.9  What could have caused such unusual showing, Q to Q deterioration despite strong positive macro?
Potentially
1. Timing of sales of aged container box, realizing gain of 1.5 other income, of which bulk in Q1 or Q2?
2. Provision for bad debts of 1.1, captured in Q1 or Q2?
3. Provision for employee benefits (ie bonus), playing catch-up in Q2 for the improved profit result?
4. Others. I don’t know, possibly my computation is flawed.

SI - Samudera Indonesia
SSL - Samudera Shipping Ltd
NCI - non-controlling interest

Confirmed point 4.  My computation is flawed.  I have merely considered SI ownership of SSL, while overlooked on SSL NCI.  The SSL NCI will roll into SI NCI in SI consolidated numbers.  There is no way to determine this value till it is disclosed in SSL 1H2021 results showing SSL NCI share of NP of 1.2m.

Assuming 0.6m SSL MI share of NP in Q1, my revised Q1 NP of SSL is 20.1m instead of 21.8m.  Need to deduct 0.6m from Q1 NCI net asset movement of 7.6m before regrossing the resultant to arrive at SSL NPAT for owner.

Thus, my NP guesstimate is 20m for Q1 and 17m for Q2, amended from previous 21.8m for Q1 and 14.9m for Q2 (much less scaring QtoQ fluctuation).  This quite mirror the QtoQ performance of SI of 21m for Q1 and 18m for Q2.

A partial review of SI results:
1.  Note 26 Cost of Sales.  Depreciation has increased from 7.6m in Q1 to 16.9 in 1H, QtoQ increase of 1.7m (as highlighted by Behappyalways)
2.  Note 26 Cost of Sales.  Last item classified as Others has increased from 3.2m in Q1 to 9.5m in 1H, QtoQ increase of 3.1m (probably caused by port congestion)
3.  Note 25 Revenue.  Revenue has increased from 128m in Q1 to 274m in H1, QtoQ increase of 18m.

It’s great to have the discussion get going here. That’s what the forum is for.

For Non Controlling Interest, I really have to reiterate that it was a check against what I was doing off the segment profits, because what I was seeing was jumps in profit by multiples. It’s more of a “hey I am seeing a huge jump in segmental on profits, how do I make sure majority of it is coming from SSL?”. If you went back to 2020 annual report for Samudera Indo and applied the same methodology, you would show nearly flat profits in SSL, when SSL profits in 2020 was $7.3mil.

As for the amounts below, it’s understandable that depreciation is higher in second quarter, since they have chartered additional vessels to handle customer demand. As long as these vessels are assumed to be chartered in a spread out manner in 2021 1H (not all in Jan 2021), it would be logical for depreciation in 2Q to be higher than 1Q. It might be unfair to attribute all increases in “others” to SSL though. What matters in the end is whether the increase in revenue is more than the increase in costs.

Lastly, if you look at segment results, the segment gross profit for shipping and agency is $23.94m in 1Q and $48.6mil in 1H. If you take away the $4.08mil that is an average of what does not belong to SSL (as per my blog post), you get about $44.5mil in gross profit which is in line with gross profit in SSL 1H statements. So this would mean that 2Q might be 0.5mil more than 1Q. Add on the other gains of $2.2m and you would get a slightly higher 2Q than 1Q by about $2.7mil. That’s how I look at it.

The higher freight rates were offset by higher depreciation. However, do note that an additional increase in 50% (using drewry) from $6000+ to the current $9,371.30 only happened mid to end June. Hopefully SSL has made the right move and increased capacity at the right time to capture this jump.

Thanks all for contributing to this discussion. It’s made me look at the financials in more detail and learned more along the way.