PENGUIN INTERNATIONAL LIMITED (SGX:BTM)
Penguin International - 1H20 Double Whammy From COVID-19 Epidemic & Depressed Oil Prices
- Penguin International reported weak results on the back of strong headwinds. 1H20 revenue and net profit formed 38.7% and 30.1% of our respective full-year forecasts. Both shipbuilding and chartering segments suffered drops in revenue due to depressed oil prices along with weak market sentiment caused by the ongoing COVID-19 pandemic.
- We cut our 2020 EPS by 34.5% and our PE-based target price by 30% to S$0.42.
- Downgrade to HOLD as we expect revenue growth to stay flat.
- Entry price: S$0.34.
Penguin International's 1H20 Results
Soft results due to industry headwinds.
- Penguin International (SGX:BTM) reported weak 1H20 results with revenue and net profit at S$50.1m (-26.2%yoy) and S$3.9m (-53.2% y-o-y) respectively, forming only 38.7% and 30.1% of our full-year estimates. The weak performance was largely contributed by the COVID-19 pandemic and the sharp fall in oil prices, which softened demand for new shipbuilding vessels along with lower chartering and utilisation rates.
Shipbuilding segment underperformed.
- Penguin International's 1H20 shipbuilding revenue was at S$39.3m, down 28.8% y-o-y as demand for new vessels deliveries dropped due to weaker market sentiment. However, Penguin International had stated that no customers had sought to terminate any existing shipbuilding contracts with some even delaying vessel deliveries via mutual agreement.
- Penguin International’s Batam shipyard also remained fully operational during Singapore’s lockdown measures, undertaking any third-party shipbuilding projects. Six vessels were delivered, of which three were built for stock and three were built to order (BTO) vessels. Two of the BTO vessels were windfarm vessels, which is a new growing segment that Penguin International is diversifying into.
Depressed oil prices weakened chartering demand.
- As the majority of Penguin International’s chartering clients are oil majors, depressed oil prices had caused Penguin International’s charter and utilisation rates to fall, leading to a 15% y-o-y drop in chartering revenue. Planned additions to the chartering fleet were also delayed due to lockdown measures in Singapore.
STOCK IMPACT
Nigerian waters still dangerous.
- According to ICC International Maritime Bureau’s 1H20 piracy report, Nigeria ceded its top spot for the most piracy attacks in 1H20. For 1H20, Nigeria had 14 attacks, one lesser than long-time top spot contender, Indonesia. However, the report also stated that the Gulf of Guinea, where Nigeria borders, accounted for 90% of 1H20 global kidnappings, implying a strong and resilient demand for safety vessels in that region.
EARNINGS REVISION/RISK
We lower our 2020-22 forecasts on the back of weak demand for both shipbuilding and chartering segments.
- We forecast Penguin International’s total revenue at S$105.7m (-18%), S$123.3m (-14%) and S$143.7m (-11%) for 2020-22 respectively. Our net profit forecasts for 2020-22 are S$8.6m (-35%), S$12.2m (-30%) and S$17.0m (-26%) respectively. The large cut in net profit is due to lower gross margin assumptions along with lower revenue for both the shipbuilding and chartering segments.
VALUATION/RECOMMENDATION
Downgrade to Penguin International HOLD with a lower PE-based target price of S$0.42.
- This is based on 7.6x 2021F 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. We reckon that the discovery of a COVID-19 vaccine as well as oil prices recovering to 2019 levels would cause a re-rating for Penguin International.
- Penguin International still has a healthy net cash balance and strong vessel portfolio that we believe would deliver in the right macro environment.
- See Penguin International Share Price; Penguin International Target Price; Penguin International Analyst Reports; Penguin International Dividend History; Penguin International Announcements; Penguin International Latest News.
SHARE PRICE CATALYST
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
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John Cheong
UOB Kay Hian
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https://research.uobkayhian.com/
2020-08-12
SGX Stock
Analyst Report
0.42
DOWN
0.600
