Singapore Shipping Corp - RHB Invest 2016-02-11: Smooth Sailing Despite Storm

SINGAPORE SHIPPING CORP LTD S19.SI

Singapore Shipping Corp - Smooth Sailing Despite Storm

SSC delivered another stellar set of quarterly results despite a shipping industry crisis, demonstrating its resilient niche business model.
SSC’ prospects are brightened by the signing of the TPP agreement, while its strong cash flow generation capacity ensures ammunition for business expansion.

In view of its decade-long earnings visibility, we reiterate our conviction BUY recommendation with a DCF-derived SGD0.67 TP (WACC: 10%, TG: 0%, 127% upside), implying 11.7x FY17F P/E.

Singapore Shipping Corporation’s (SSC) 3QFY16 (Mar) results were in line with expectations, with net income surging 38.7% YoY to USD4.2m on the back of full contribution from its existing vessels.
As we had previously pointed out, there would be limited room for earnings variability due to its niche business model with most of the revenue and costs fixed for its ship chartering business for the next decade. Therefore, we expect the group to report similar earnings in the next quarter.

In just nine months, SSC had generated USD20.2m of net operating cash flow. As a result, its net gearing ratio has come down to 115% as of 3QFY16 from the peak of 150% at endFY15.
The strong cash flow provides the group with ammunition for future vessel acquisition without having to raise any equity.
Given its niche expertise, management is optimistic that the group can take advantage of macroeconomic weakness to look for vessels at a bargain while also sourcing for lucrative charter contracts.

Following the signing of the TPP agreement by 12 countries on 4 Feb 2016, SSC's future prospects have brightened as the removal of tariffs would increase Japan and US automotive exports, which should in turn boost vehicle seaborne trade.

Edison Chen RHB Invest | http://www.rhbinvest.com.sg/ 2016-02-11

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