Penguin International Ltd - UOB Kay Hian 2019-10-09: Riding The Wave, Backed By Favourable Industry Trends


Penguin International Ltd - Riding The Wave, Backed By Favourable Industry Trends

  • As the world’s top builder of mid-sized aluminium crewboats and security vessels, Penguin International (SGX:BTM) is set to enjoy strong EPS growth of 42.9% for 2019, backed by a healthy delivery pipeline and growing demand for its new products in the fields of fire fighting and renewable energy.
  • Penguin International should continue to benefit from Nigeria’s piracy issues and the low transportation costs of offshore crewboats.
  • Initiate coverage with a BUY and a target price of S$0.85, based on 7.6x 2020F PE.

Company Background

  • Incorporated in 1976, PENGUIN INTERNATIONAL LIMITED (SGX:BTM) is a homegrown, publicly-listed designer, builder, owner and operator of aluminium high-speed craft. Through a group of wholly-owned and integrated subsidiaries, it has delivered more than 150 aluminium workboats, patrol craft and passenger ferries to ship owners around the world. This includes over 120 of its proprietary-designed offshore crewboats (Flex) and armoured security boats (Flex Fighter).
  • Penguin International has two shipyards in Tuas (Singapore) and Batam (Indonesia) where it runs a self-funded build-for-stock model, using internal cash to build Flex crewboats and security boats. Demand for Flex Fighters derives mainly from Nigeria where piracy is rampant. The ASP of a Flex Fighter is in the range of US$4m-5m. A mandatory 20-30% deposit is collected upon order and paid in full upon delivery. If a client withdraws an order, the deposit is forfeited to Penguin International.
  • Also, Penguin International undertakes special BTO projects for clients, such as windfarm support vessels for Taiwan, patrol boats for Australia and a passenger ferry for Africa. Recently, Penguin International delivered the first of two newly-built FiFi-1 Classed Fire Fighting Search-and- Rescue vessels to the SCDF.
  • Penguin International provides chartering services to O&G companies via its wholly-owned subsidaries (eg Pelican Offshore Services). Its O&G clients include ExxonMobil and Petronas in Malaysia, chartering crewboats mainly for transportation between rigs. Penguin International has an operating fleet of 16 crewboats and plans to increase fleet size as demand grows. Periodically, Penguin International converts old crewboats from its own charter fleet into Flex Fighter security boats for the Nigerian market.


  • We initiate coverage on Penguin International. (please see attached 21-page PDF report for complete analysis).

Niche shipbuilder with good track record and healthy delivery pipeline.

  • Established in 1976, Penguin International builds and owns niche high-speed aluminium craft. It has delivered more than 150 aluminium workboats, patrol crafts and passenger ferries around the world, including Africa, Singapore and ASEAN. Penguin International’s strong balance sheet, unique business model and niche expertise have helped it to weather tough times such as the oil crisis in 2015-16. It has been gaining market share in Singapore from competitors that exited the market. With a healthy delivery of about 30 vessels for 2019 vs 15 vessels for 2018, we expect 2019 and 2020 EPS to grow 42.9% and 26.8% y-o-y respectively.

Beneficiary of Nigeria’s piracy issues and low transportation costs of crewboats for O&G players.

  • Nigeria, Penguin International’s main market with around 40% revenue contribution, has been plagued by piracy off its coastal waters. According to the International Maritime Bureau, Nigeria has been consistently in the top two in regard to the frequency of piracy attacks. Penguin International’s Flex Fighters provide Nigerian boat owners with the speed and armour they need to combat these pirates.
  • On the other hand, the low oil price environment has prompted more O&G companies to adopt high-speed crewboats as the main mode of offshore transportation, instead of helicopters, between oil rigs. Penguin International’s chartering revenue grew 17.5% y-o-y in 2018 and we expect it to grow 17.6% y-o-y in 2019.

Growing the size and quality of profit via more new products.

  • Already an expert in aluminium security boats and offshore oil & gas (O&G) crewboats, Penguin International has started to expand its product portfoilio to include fire fighting ships, windfarm vessels and passenger ferries. Penguin International delivered several of these vessels in 1H19 and is poised to secure more build-to-order contracts for new products in the future.
  • See attached 21-page PDF report for Penguin International's industry outlook.


Rapid expansion in revenue for shipbuilding and chartering segments.

  • We forecast Penguin International’s 2019 shipbuilding revenue to surge 43.3% y-o-y while 2019 chartering revenue should increase 17.6% y-o-y. For 2019, we expect higher vessel sales (17 in 2019 vs 7 in 2018), stronger chartering revenue (more operating vessels, higher utilisation and charter rates according to 2Q19 report) and greater revenue recognition from higher BTO deliveries to contribute strongly.

Strong growth in revenue and net profit for 2019-21.

  • Taking into account the favourable outlook in both the shipbuilding and chartering segments, we believe the strong demand for Flex vessels, growing pipeline of BTO orders and rising recurring chartering revenue will push revenue and net profit higher for 2019-21. We expect Penguin International’s total revenue and net profit to increase 37.4% y-o-y and 42.9% y-o-y respectively in 2019.

2019-21 revenue is forecasted at S$147.3m, S$183.2m and S$198.8m respectively,

  • representing a CAGR of 22.8% for 2018-21. Meanwhile, we forecast net profit at S$19.4m, S$24.6m and S$27.6m for 2019-21 respectively, with net margins of 13.2-13.9% and a CAGR of 26.6% for 2018-21.
  • See attached 21-page PDF report for Penguin International's earnings outlook.


Initiate coverage with a BUY and a PE-based target price of S$0.85.

  • This is based on 7.6x 2020F PE, pegged to its long-term average mean (excluding outliers of > 2SD of 30x). The exclusion is primarily from the high base seen in 2016-18. The stock is currently trading at 5.6x 2020F PE, below its long-term average of 7.6x. Penguin International has a strong balance sheet, with 2Q19 net cash of S$47.9m (35.1% of market cap); its net cash has been increasing since 2017. According to our sensitivity analysis, every S$0.5m variation in net earnings would change our target price by S$0.01-0.02.
  • See attached 21-page PDF report for complete analysis on Penguin International.


Spike in oil prices.

  • As the price of oil impacts offshore activity, a spike in oil price would increase the demand for offshore crewboat chartering and shipbuilding.

Surge in vessel sales and orders.

  • Stronger revenue contribution from unexpected increases in build-for-stock vessel sales and BTO orders.

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-10-09
SGX Stock Analyst Report BUY INITIATE BUY 0.85 SAME 0.85