SINGAPORE SHIPPING CORP LTD
S19.SI
Singapore Shipping Corp (SSCL SP) - Call Of Conviction
- SSC is the only listed pure play PCTC company in the world that offers both safety and growth.
- It is a conviction BUY with a DCF-derived SGD0.67 TP (116% upside), implying 13.5x FY16F P/E.
- Operating in a highly oligopolistic sector, it has carved a profitable niche.
- It secures decades-long profit visibility through long term charters to blue chip clients and enjoys quality growth through its fleet expansion plans.
Close relationships secure decades of profit with long-term charters.
- In the oligopolistic pure car truck carrier (PCTC) industry, Singapore Shipping Corp’s (SSC) close ties with customers has helped it secure decades-long profitable charters (10 years and more for 5/6 vessels) with blue chip majors like Nippon Yusen KK (9101 JP, NR) and favourable borrowing rates due to its low-risk profile.
- Together with minimum forex and oil price exposure, SSC has its profits protected for the next 15-20 years.
Excellent track record of capital allocation and treating minority shareholders well.
- Management disposed of SSC’s shipping fleet before the peak of the cycle in 2008 and has since distributed > USD200m in dividends.
- The company embarked on a fleet expansion programme last year, doubling its fleet size to five. Management plans to double the fleet again in the next 3-5 years.
- We believe that once the fleet expansion is completed, SSC can raise its dividend payout to 50% in FY19, implying 10.2% yield in a base case scenario.
2QFY16 (Mar) results promising.
- SSC delivered stellar 2Q results with net income surging 136.4% YoY and 36.5% QoQ to USD4.2m. This was due to the absence of several one-off items such as:
- a vessel that was off hire for dry-docking (likely to be one of smaller vessels), and
- a onetime crew hiring and training costs for the newly delivered MV Taurus vessel, which occurred in 1QFY16.
Strong operating cash flow powering new vessel acquisition.
- In 1HFY16 alone, SSC generated USD12.6m in net operating cash flow, equivalent to around two-thirds of the cost of a second-hand vessel. Hence, this justifies our thesis that the company can purchase new vessels without raising any equity.
Edison Chen
RHB Research
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http://www.rhbinvest.com.sg/
2015-12-02
RHB Research
SGX Stock
Analyst Report
0.67
Same
0.67
