PENGUIN INTERNATIONAL LIMITED (SGX:BTM)
Penguin International Ltd - Safer Haven Till Crude Oil Price Recovery
- Delays in stock sales and deliveries pushed down 1H20 net profit. 2H20F is likely to be sequentially positive but still weaker y-o-y. We cut Penguin International's FY20-22F EPS.
- Penguin International sailed through the last oil crisis and will likely do so again given its padded net cash position and diversified portfolio, in our view.
- Reiterate ADD with an unchanged Target Price of S$0.55, still on 0.7x FY20F P/BV (FY09-19 average).
- Penguin International is currently trading at forward P/BV of 0.48x.
Slower deliveries/stock sales cap 1H20 results
- Penguin International (SGX:BTM) reported a 1H20 revenue of S$50.1m (-26.2% y-o-y) on the back of fewer build-to-stock (BTS) vessels sold, leading to lower shipbuilding revenue (-28.8% y-o-y) and lower chartering revenue (-15% y-o-y).
- Gross profit margin (GPM) was lower at 25.2% (main miss against our expectations), largely the effect of lower BTS vessels sold (which fetch higher margins), in our opinion. The lower revenue and gross profits resulted in reported net profit falling 53.2% y-o-y, below our expectations.
Key markets slightly soft, but stabilised; cut FY20-22F EPS
- In early-Aug 20, Penguin International guided for no cancellations of any of its BTO contracts but some vessel delivery delays by mutual agreement. It also guided that the offshore oil and gas (crewboats) and maritime protection (security vessels) markets have weakened but stabilised recently; the offshore wind market (windfarm boats) remains fairly resilient for now, while the tourism market (passenger ferries) are the most affected.
- We cut Penguin International's FY20- 22F EPS by 18.8-20.7% as we lower GP margins, especially in FY20F.
- While we forecast a 43% y-o-y drop in FY20F EPS, we pencil in 31% y-o-y growth in FY21F EPS as we believe vessel demand will improve as crude oil prices and industry sentiment pick up.
In a better place; likely a beneficiary when crude oil price rises
- Penguin International sailed past the 2014-16 oil crisis with only one year of net loss (in FY16). Back then, it had lower chartering and BTO contracts and a lower net cash pile. Profits recovered as crude oil prices increased in 2016-19, unlike some of its other Singapore mid-size offshore peers (i.e. ASL Marine (SGX:A04), Marco Polo Marine (SGX:5LY), KimHeng Offshore & Marine (SGX:5G2) and Nam Cheong (SGX:N4E)) which are still struggling with low profits/losses.
- FY20F will be a soft year; but given its healthy balance sheet and diversified portfolio, we think that Penguin International will be one of the main survivors of this round of economic/crude oil slowdown.
A survivor; reiterate ADD on Penguin International
- While we expect FY20F net profit to weaken due to lower stock sales and delays in deliveries, Penguin International (SGX:BTM)’s 1H20 net cash position is a positive (net cash/share of 23 Scts), while forward P/BV valuations are undemanding at 0.48x. We think Penguin International will survive this crisis to see revenues pick-up with crude oil prices.
- We reiterate our ADD call on Penguin International and Target Price of S$0.55, still on 0.7x FY20F P/BV (excluding investment in Marco Polo Marine) based on its long-term (2009-2019) average mean.
- See Penguin International Share Price; Penguin International Target Price; Penguin International Analyst Reports; Penguin International Dividend History; Penguin International Announcements; Penguin International Latest News.
- Potential re-rating catalysts are higher vessel sales and GPM.
- Downside risks are lower ship sales and chartering.
- See PDF report attached below for complete analysis.
Cezzane SEE
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-08-27
SGX Stock
Analyst Report
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SAME
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