Singapore Shipping Corp - RHB Research 2015-10-12: Poised To Benefit From TPP

Singapore Shipping Corp - RHB Research 2015-10-12: Poised To Benefit From TPP SINGAPORE SHIPPING CORP LTD S19.SI 

Singapore Shipping Corp (SSCL SP) - Poised To Benefit From TPP 

  • Our base-case scenario for SSC to acquire/charter out an extra PCTC vessel pa is solid, with Japan’s automotive exports set to increase. We expect the upcoming TPP to remove tariffs and increase Japanese and US automotive exports, which should in turn boost vehicle seaborne trade. 
  • Maintain BUY and SGD0.59 TP (103% upside), as SSC is poised to benefit along with Japanese PCTC shippers. 
  • We expect 2QFY16 earnings to be strong, nearly doubling YoY to USD3.5m. 

 Trans-Pacific Partnership (TPP) to remove tariffs on Japanese automobiles in North American markets. 

  • The upcoming TPP free trade agreement is set to increase demand for Japanese automotive vehicles as tariffs drop. Once the agreement takes effect, the 2.5% US tariff on Japanese automobiles will be phased out over 25 years – ie it will be halved in 20 years and eliminated in 25 years (US tariffs on Japanese trucks are currently 25%). Meanwhile, Canada will eliminate its 6.1% tariff on Japanese automobiles in five years. 

 Overall automotive export demand set to increase. 

  • Conversely, US automobiles should enjoy easier access into Japanese markets (while there are no tariffs on US automobiles, there are “soft” barriers such as distribution etc). Furthermore, the recent Volkswagen (VW) (VOW GR, NR) scandal should increase demand for Japanese automobiles as they grab market share from VW and possibly other European carmakers. 

 Base case of expansion and USD15.7m FY17F (Mar) profit solid. 

  • With demand for seaborne vehicle trade poised to increase and Singapore Shipping Corp’s (SSC) link with Japanese shipping companies strong, our base-case scenario for SSC’s expansion of one pure car truck carrier (PCTC) per year and FY17F profit of USD15.7m is solid. This also puts management’s plan of doubling its fleet (our bullcase scenario) closer to realisation. 

 2Q earnings should represent the full potential of SSC. 

  • We believe SSC should report 2QFY16 earnings of around USD3.5m. As 1QFY16 consisted of several one-off items, we believe that 2QFY16 should represent the full potential of its ship-owning business and future quarters should be similar.

Edison Chen RHB Securities | 2015-10-12
RHB Securities SGX Stock Analyst Report BUY Maintain BUY 0.59 Same 0.59