Samudera Shipping Line - UOB Kay Hian 2021-04-05: Beneficiary Of Favourable Container Freight Rate, Trading At A Huge Bargain


Samudera Shipping Line - Beneficiary Of Favourable Container Freight Rate, Trading At A Huge Bargain

  • With a fleet of 24 container ships, Samudera Shipping provides container shipping transportation of cargo in Asia.
  • Samudera Shipping is benefitting from a rise in container freight rates to a multi-year high since 2H20 due to high demand in e-commerce trade and supply disruption due to port congestion. Its 2020 core net profit grew 330% y-o-y, excluding impairments.
  • For 2020, Samudera Shipping is trading at 6.5x P/E and 0.6x P/B vs peers’ average of 12.1x P/E and 3.1x P/B. Net cash forms 50% of its market cap.

Samudera - Established container shipping operator with good track record.

  • Samudera Shipping Line (SGX:S56) is a container shipping operator with more than 20 years of operating track record in Asia. As of end-20, the bulk of its revenue came from the ASEAN region (47%), Indonesia (26%) and the Middle East/India (21%).
  • Samudera Shipping operates 27 vessels, with 24 container ships ranging from 1,054-1,740 twenty-foot equivalent units (TEU). These smaller container vessels are used for short haul trips/feeder routes that connect small regional hubs and can also be used to move goods into larger vessels that are on long-haul trips.

Beneficiary of favourable container freight rate.

  • Lockdown measures due to the COVID-19 pandemic have accelerated the adoption of e-commerce, which has been the key demand driver for container freight. On the other hand, supply for container freight has been disrupted by port congestion and labour shortages.
  • According to Howe Robinson Partners, vessels of all sizes are now seeing multi-year high rates, with their Dec 20 report showing an increase of over 50% in the index from their previous quarterly report. This benefits Samudera Shipping.
  • In 1Q21, the container freight rate remains at a favourable level especially after the Suez Canal incident in Mar 21 which could force ship operators to look for alternative supply chain solutions and this could present opportunities for Samudera Shipping.
  • In an interview with The Business Times on 29 Mar 21, Samudera Shipping shared its positive outlook and stated that it is confident in producing better results in 2021 due to better opportunities, especially in Indonesia, even though there might not be a jump in freight rate.

Robust financial performance and solid balance sheet.

  • In 2020, Samudera Shipping’s core net profit of US$26m grew 330% y-o-y, after excluding an impairment charge of US$10m. The strong earnings performance was mainly due to the favourable freight rates for container cargo.
  • More importantly, Samudera Shipping’s net cash position grew 143% y-o-y to US$51m, up from US$21m in 2019. Samudera Shipping’s net cash forms around 50% of its market cap.
  • Historically, Samudera Shipping has a weak balance sheet. However, it started reducing its debt in 2017 to refocus its business, by disposing its non-container ship vessels. As a result, Samudera Shipping turned into a net cash position for the first time in 2019.

Samudera Shipping's share price trading at a deep valuation discount vs peers.

Singapore Research Team UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-04-05
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998