Penguin International Ltd - UOB Kay Hian 2020-02-26: 4Q19 Excellent Results To Round Off 2019, Weakness In Share Price Unfounded


Penguin International Ltd - 4Q19 Excellent Results To Round Off 2019, Weakness In Share Price Unfounded

  • Penguin International capped off 2019 with strong 4Q19 results that were in line with our expectations. 2019 revenue and net profit came in at S$136.3m and S$19.4m respectively, forming 92.5% and 100% of our full-year forecasts. Both the shipbuilding and chartering segments contributed strongly in 2019.
  • With resilient demand and a strong orderbook, we reckon the ongoing COVID-19 epidemic has little impact on Penguin International.
  • Maintain BUY and PE-based target price of S$0.85.


Spectacular annual growth.

  • Penguin International (SGX:BTM)’s 4Q19 revenue and net profit were in line with expectations. Strong revenue contribution from both the shipbuilding and chartering segments led to robust growth for 2019 revenue (+27.1% y-o-y) and 2019 net profit (+42.9% y-o-y).
  • According to Penguin International’s 4Q19 results, this was led by a strong pick-up in demand from new and existing markets for both business segments.

Excellent delivery numbers and orderbook.

  • In 2019, shipbuilding revenue grew 31.4% y-o-y to S$108.4m (S$82.5m). This was largely due to an impressive delivery of 32 new vessels in 2019 vs 15 vessels in 2018. Furthermore, Penguin International’s inventory levels have doubled from S$20.6m in 2018 to S$42.0m in 2019.
  • As inventory largely consists of ships under construction, this gives an indication to the expanding orderbook Penguin International currently has. We forecast Penguin International to deliver around 40 new vessels in 2020.

Chartering segment becoming a robust revenue driver.

  • For Penguin International’s chartering segment, revenue grew 12.9% to S$27.9m (S$24.7m). This was due to Penguin International adding four new crewboats to its operating fleet while charter rates and utilisation rates have risen in line with increased demand from oil companies switching away from helicopters. As oil prices have stayed muted, this bodes well for crewboats over choppers.

Almost debt-free with a growing cash war chest.

  • Penguin International has increased its net cash position by S$15.5m to S$57.1m (+37.3% y-o-y) in 4Q19. Also, Penguin International has pared down its debt significantly to S$0.08m, indicating that Penguin International is almost debt free.
  • A final dividend of 1.75 S cents was also declared, indicating a 2.5% dividend yield and 20% dividend payout ratio.
  • With such a healthy balance sheet, Penguin International has a strong buffer to withstand any potential business headwinds or have the capacity to increase dividends in the future.


Nigeria still a piracy hotspot.

  • According to ICC International Maritime Bureau’s Annual 2019 piracy report, Nigeria retained its top spot for the most piracy attacks in 2019. For 2019, Nigeria had 35 attacks, beating second-placed Indonesia by 10 incidents. A total of 162 incidents occurred in 2019, down 23.7% y-o-y. However, Nigeria made up 21.6% of these incidents, cementing its top spot over Indonesia (15.4%). The report also stated that the Gulf of Guinea, where Nigeria borders, accounted for 90% of crew kidnappings globally, implying a strong and resilient demand for safety vessels in that region.
  • As Nigeria contributes 36-56% of Penguin International’s revenue, this bodes well for Penguin International as its Flex Fighters are equipped with the speed and armour Nigerian boat owners need to combat these pirates. We reckon there would be continued strong demand for Penguin International’s build-for-stock Flex Fighters, boosting margins and earnings as these build-for-stock vessels command higher margins than Penguin International’s BTO products.


Maintaining 2020-21 forecasts while adding in 2022 forecast.

  • We reckon Penguin International’s strong orderbook, coupled with its growing chartering segment, would contribute strongly in 2020 and beyond. We expect the shipbuilding and chartering segment to grow 36.0% and 28.0% respectively in 2020, unaffected by the ongoing COVID-19 epidemic.
  • We forecast group revenue at S$183.2m, S$198.8m and S$221.3m for FY20-22 respectively. Our net profit forecasts for FY20-22 are S$24.6m, S$27.6m and S$30.9m respectively.



Spike in oil prices.

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

Surge in vessel sales and orders.

  • Stronger revenue contribution from unexpected for-stock vessel sales or BTO orders.

Llelleythan Tan UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-02-26
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