PENGUIN INTERNATIONAL LIMITED (SGX:BTM)
Penguin International Ltd - Cash To Ride This Cycle
- Penguin International (SGX:BTM) provided some business updates in their recent AGM. The outlook is challenging due to Covid-19 and collapse in oil prices.
- Charter rate for crew boats will be under pressure, demand for new vessels is down and ferry customers will suffer from the pandemic.
- We downgrade Penguin International to ACCUMULATE from BUY.
- Our FY20e earnings is cut by 52%. The target price is dropped to S$0.55 (previously S$0.88). We change our methodology from 5x PE (excluding cash) to a P/BV of 0.7x FY20e (historical 10-year average).
- The net cash of S$60mn (end-Dec19) will allow Penguin International to ride through this turbulence. Net cash is now 52% of market capitalisation.
Summary From Penguin International's AGM
- Covid-19 / Oil price impact
- Demand for new vessels is down.
- Charter rates for crew boats reduced as oil companies slash their cost.
- Ferry market is the worst affected by the pandemic
- Covid-19 Disruption
- Shipyard in Singapore is designated essential but only half the foreign workers are allowed to work.
- Batam shipyard is operating at full strength.
- Existing orders
- No contracts have been terminated. More than half of our stock vessels have been sold, with deposits received.
- Others
- Offshore Wind Farm Support segment is still growing and the company is making progress in this segment.
- Demand for Penguin Flex Fighter security vessels in Nigeria in the short term will be affected. However, oil represents a critical industry for Nigeria and piracy in the Gulf of Guinea is still rising.
Downgrade to ACCUMULATE with a lower target price of S$0.55 (previously S$0.88).
- The biggest worry will be trade receivables and inventory of vessels built to stock. During such a stressed environment, the risk will be elevated from customers defaulting payments and inventory becoming unsold. In 2016 downturn, Penguin International swung into losses and revenues plunged by 72%. The difference in this cycle is the larger net cash on the balance sheet (from S$24mn end 2015 to S$60mn end 2019) and a more diverse portfolio of vessels built.
- With such an uncertain earnings outlook, we will use price to book as a gauge to valuations.
- See Penguin International Share Price; Penguin International Target Price; Penguin International Analyst Reports; Penguin International Dividend History; Penguin International Announcements; Penguin International Latest News.
- The 10-year price to book average is 0.7x, with a range of 0.5x to 1x. Penguin International can ride out the downtrend in the industry with their large cash hoard.
Paul Chew
Phillip Securities Research
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https://www.stocksbnb.com/
2020-06-03
SGX Stock
Analyst Report
0.55
DOWN
0.88
