SAMUDERA SHIPPING LINE LTD (SGX:S56)
Samudera Shipping Line - Trade Activity Anchoring Shipping Demand
Samudera Shipping Line primarily engaged in the transportation of containerised and non-containerised cargo.
- Under its Indonesian parent PT Samudera Indonesia, which owns 65.1% stake, Samudera Shipping Line (SGX:S56) is primarily engaged in the transportation of containerised and non-containerised cargo through its Container Shipping and Bulk & Tanker business segments.
- Samudera Shipping Line’s vessels and services currently service trade routes connecting various ports in Southeast Asia, the Indian Subcontinent, the Far East, and the Middle East.
Container shipping
- Samudera Shipping Line’s main business of container shipping makes up 95.3% of FY20 revenue. The container shipping segment provides feeder services to the “main line operators” for the transportation of containerised cargo between Singapore as a hub port and other ports in Asia, as well as liner services to cargo owners and freight forwarders using “carrier owned cargo” between ports in Asia, either directly or through the Singapore hub port.
Bulk & Tanker
- The bulk & tanker business is involved in the transportation of special dry bulk, liquid and gas cargo in the Indonesian domestic market and internationally.
Logistics & Others
- The logistics business engages in forwarding and warehousing services. In addition, Samudera Shipping Line also provides agency services in Bangkok, Port Klang, Penang, Mumbai, Kolkata, Chennai and Dubai to both own vessel operations and other third-party shipping operations.
Samudera Shipping Line's revenue decrease in FY20 largely due to changes in shipment terms
- Samudera Shipping Line recorded a revenue of US$347.9m in FY20, down from US$373.8m in FY19, despite seeing higher volume. Samudera Shipping Line’s total container volume handled for FY20 increased to 1.3 million TEUs, from 1.2 million TEUs in FY19, with the high container shipping activity stemming from higher consumer demand and trade activity. However, the softening of bunker prices lowered bunker surcharge collection, which muted some of these gains. See the financial summary section below for more details.
Strong demand for goods will continue to drive trade activity
- Covid disrupted some shipping activity in 1H20, but it has resumed since 2H20 (+5.7% over 1H20), largely as Singapore’s border restrictions are mostly not extended to trade. With lockdowns, spending on services were curbed, leaving consumers to spend more on goods, as reflected in 2H20’s surge in shipping activity.
- High consumer demand persisted into 2021. In the first 5 months of 2021, Singapore’s transshipment cargo (assuming 85% of total containerised cargo, according to Drewry) rose 4.2% y-o-y. With the assumption that consumption of necessities remains constant, we see the surge in shipping activity as attributable to a higher consumer demand for goods.
- Similarly, total merchandise exports/imports rose 14.6%/12.0% over the same period last year. With limitations on capacity and other restrictions on services largely still in place, we expect spending on consumer goods will sustain in the coming months.
Freight rates sustained at high levels; to lift margins in the short term
- The high consumer demand, port congestions and shortage of containers, against the lack of shipping capacity, led to a surge in freight rates alongside higher container prices. The China containerized freight index, a composite for the overall freight index around the world, rose 16.9% m-o-m as at 25 June to 2,591.41. Week on week, the composite is up 2.6%.
- In the short-term, we expect Samudera Shipping Line to have some pricing power as they had previously locked in more favourable charter rates vis-à-vis the current spot rates. This gives Samudera Shipping Line the ability to charge higher prices but manage costs at contracted levels, which will lift margins.
- However, high freight rates and vessel charter costs would be worrying in the longer-term, especially if spot freight rates remain high at expiry of existing contracts.
Benefitting from shorter-haul routes
- Shorter haul routes will make operations more efficient with a shorter turnaround time, which means that Samudera Shipping Line can increase shipping frequency and put down higher shipping volumes. Part of the reason for shipping bottlenecks is because more ships/containers are required for weekly service on longer routes (e.g. China to US), as more containers are stuck on these routes.
- Secondly, fewer vessels and containers are required to make weekly sailings, which lowers the vessel investment per route. In addition, Samudera Shipping Line’s focus on shorter-haul routes will allow the flexibility to increase shipping frequency for more profitable routes, and the ability to be comparatively nimbler play to their strengths as a smaller carrier.
Expanding income streams
- In addition to containerised cargo, which is the bulk of Samudera Shipping Line’s revenue driver, Samudera Shipping Line is looking for investment opportunities to expand their logistics business. On top of that, Samudera Shipping Line aims to rebuild their presence in Indonesia for bulk & tanker sector.
- Noting the volatile nature of this segment, Management indicated that they would choose to adopt a more conservative approach when going back into bulk carriers, by entering into longer-term contracts.
- We believe that Samudera Shipping Line’s net cash of US$51.3m (as at 31 Dec 20) gives them room for more expansion opportunities.
Peer comparison
- Samudera Shipping Line's closest listed peer comparison is Thailand’s Regional Container Lines Public Company Limited. The barriers to entry in this sector has increased currently with the higher vessel prices and elevated charter rates. In addition, Samudera Shipping Line also has a good relationship with PSA Singapore, which allows for more favourable berth times, among other factors.
- We noted that Samudera Shipping Line generates a ROIC of 4.1% (FY20). Indonesia’s risk-free yield) was 6.61%, as at 24 June.
Samudera Shipping Line - Financial Summary
Revenue decrease in FY20 largely due to changes in shipment terms
- Samudera Shipping Line recorded a revenue of US$347.9m in FY20, down from US$373.8m in FY19, despite seeing higher volume. SSL’s total container volume handled for FY20 increased to 1.3 million TEUs, from 1.2 million TEUs in FY19, with the high container shipping activity stemming from higher consumer demand and trade activity. However, the softening of bunker prices lowered bunker surcharge collection, which muted some of these gains.
- The decrease in revenue was largely due a portion of the shipper-owned cargo (SOC) changing its shipment terms from container yard (CY) to free in/free out (FIO), rather than a lower demand. FIO terms meant Samudera Shipping Line would not be responsible for charges involving unloading of cargo at destination. Previously, these charges (e.g. port charges, unloading of cargo, etc) were recorded in both revenue and costs, but they were pass-through costs which had little impact to bottomline.
- The change to FIO terms thereby reduces both revenue and costs, and was partly the reason for better margins in FY20. Samudera Shipping Line’s overall gross margin rose to 8.5% in FY20 from 4.8% in FY19. The other key factor was higher market freight rates, which came about with higher shipping activity, and was further exacerbated by a shortage of container and vessel capacity, and port delays arising from pandemic control measures. Going forward, we expect the margin to be more stabilised.
- Samudera Shipping Line's FY20 PATMI rose 84.9% y-o-y from US$3.9m to US$7.2m, largely due to higher gross margins (8.5% vs 4.8%) and lower finance costs (-43.8% y-o-y), but was dragged down by an impairment charge.
- Samudera Shipping Line recorded a US$9.4m impairment charge on six of its vessels, due to
- three containerships marked to respective sale prices;
- the fourth container vessel and two other chemical tankers were impaired taking into consideration their age and hence anticipated decline in charter rates.
Two customers accounting for more than 10% of revenue
- Samudera Shipping Line has two customers that contributed to 36.0% of the total FY20 revenue. Management noted that Samudera Shipping Line periodically assess risks of these customers and deem the credit risks of these customers to be low.
Geographical breakdown
- The container shipping business makes up the bulk of Samudera Shipping Line’s revenue, contributing over 95.3% in FY20. Container shipping and logistics segments can be broken down into their geographical contributions, with South East Asia (excluding Indonesia), Indonesia and Middle East and Indian Sub-continent segments making up 47.3%, 26.3% and 21.4% of total container shipping and logistics revenues respectively.
- The bulk and tanker business segment recorded a revenue of US$6.8m in FY20, a 25.5% decrease compared to US$9.2m in FY19, as Samudera Shipping Line operated a smaller fleet following the disposal of two bulk carriers in FY19 that were not contributing positively to earnings. Noting the volatile nature of this segment, Management indicated that they would adopt a more conservative approach when re-entering the bulking business, by entering into longer-term contracts.
Net cash position
- Samudera Shipping Line's net cash rose from US$20.8m to US$51.3m (as at 31 Dec 2020), with lower bank borrowings (US$30.0m vs US$ 35.7m), mainly due to the disposal of a number of vessels in the past year.
- See
Industry Overview
Strong demand for goods will continue to drive trade activity
- Covid has led to a higher demand for goods globally, away from services, with lockdowns and restrictions on activities. The US stimulus was a driver of consumer spending. Now, with the progress of the vaccination rollout globally, improvement in consumer sentiment is sustaining the spending on goods.
- Covid disrupted some shipping activity in 1H20, but it has resumed since 2H20 (+5.7% over 1H20), largely as Singapore’s border restrictions are mostly not extended to trade. With lockdowns, spending on services were curbed, leaving consumers to spend more on goods, as reflected in 2H20’s surge in shipping activity.
High consumer demand persisted into 2021.
- Continue to read the report attached below for complete analysis on industry trend and Samudera Shipping Line's growth drivers and key risks.
Lim Li Jun Tracy
SAC Capital Research
|
https://www.saccapital.com.sg/
2021-06-30
SGX Stock
Analyst Report
99998
SAME
99998
