Penguin International Ltd - CGS-CIMB Research 2020-06-17: On Slower Throttle, Buoyed By Balance Sheet


Penguin International Ltd - On Slower Throttle, Buoyed By Balance Sheet

  • Lower crude oil prices and Covid-19 led to our conservative forecasts for Penguin International. We cut our FY20-22F EPS by 14%-37%.
  • We still like the company for its padded net cash position (FY20F: 41% of current Penguin International share price) and diversified product portfolio.
  • We think Penguin International is in a better position vs. 2014-2016.
  • Reiterate ADD, with a lower Target Price of S$0.55, now based on 0.7x FY20F P/BV (2009-2019 average).

Covid-19 and low oil prices crimp; but no cancellations to date

  • In May, Penguin International (SGX:BTM) mentioned that its shipyard in Tuas (which remained operational as an essential service during the circuit breaker period) was operating at less than half of its foreign workforce. Its shipyard in Batam had no movement restrictions and, hence, was still operating at full strength, with the requisite safe distancing, screening, segregation and other measures in place. Deliveries had taken a step back in 1Q due to country lockdowns.
  • In May, Penguin International guided that demand for some of its products has slowed and there have been slight rate reductions for its crew boat charters. However, to date, none of its build-to-order (BTO), build-to-stock (BTS) and charter vessels have seen contract cancellations.

Now vs. 2014-2016: Better balance sheet, diversified portfolio

  • As at end-FY19, Penguin International’s net cash position was at a 10-year high of S$59.8m (net cash per share of 27 Scts) and above its cash position during the last oil price crisis in 2014-2016. Besides this, Penguin International has balanced its product portfolio to have more BTO projects, including windfarm vessels and patrol boats (vs. mainly crew boats and security boats in 2014-2016), and to more countries such as Australia and Taiwan (vs. predominantly Nigeria and Singapore previously).
  • Penguin International guided for slower own-fleet expansion and stock vessel construction programmes to conserve cash in FY20F. We think this will help stave cash depletion, while the higher proportion of BTO programmes will give Penguin International a baseline of projects to work on in FY20F even as BTS sales slow, in our view.

Lowering estimates due to near-term uncertainties

  • We cut Penguin International's FY20-21F EPS by 14%-37% on lower shipbuilding, ship-chartering revenue and other income (from opportunistic sales of own vessels).
  • While this results in a 29% y-o-y drop in FY20F EPS, we forecast a 29% y-o-y recovery in FY21F EPS, on the back of recovery in ship vessel demand as industry sentiments pick up moving ahead.

Reiterate ADD; padded balance sheet will help till coast is clear

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-06-17
SGX Stock Analyst Report ADD MAINTAIN ADD 0.55 DOWN 0.820