I believe traders have been shorting this stock for past months. I hope the squeeze kicks in hard from tomorrow. FSL should commence a buyback given the current low valuation. Potential dividend yield over 20%.
Market is mis-pricing FSL badly. This is a deep value stock and if one assumes a dividend yield of 10%, the target price is 32,5 cents. Distributable income for FY16 was usd14.8 million (do your maths).
The mis-pricing is astonishing. Management has to kick-start a buyback to raise shareholder value.
The sell-down of FSL in early morning trade today is unnecessary and is in response to the auditor’s report released in SGX last night. To those who have accounting knowledge, the net current asset deficit of usd179 million was due to the re-classification of the bank loan from long term liabilities to current liabilities as the maturity of the loan has fallen to within 12 months. Without this accounting adjustment, FSL would report a current asset surplus of usd 43 million. Strangely, this was not explained by the auditors (Moore Stephens LLP) in its statement.
This is an accounting adjustment and has no bearing on the business and the operating cash flow, which has been in surplus (averaging usd 65 million per annum) for the past 5 financial years.
FSL has advised that the refinancing of the loan will be successful and judging from recent announcements, the new bank loan is likely to commence from April. Hence, the accounting treatment for the loan will shift back to long term liability.
I have issue with the report on the audit of the financial statements of FSL by its auditors, Moore Stephen LLC. Without stating the reasons for the net loss of usd31 million and the current asset deficit of usd179 million, this report has created unnecessary alarm on its shareholders. Worse still, the report questioned the going concerns of FSL’s business.
It failed to mention these facts:-
- Loan repayments are on schedule
- More than usd 50 million debts repaid within 12 months
- FSL has cash reserve of usd 42.8m (covers loan repayments of 4 quarters)
- FSL is discussing with lenders of refinancing of current loan
- Price/Net Book value at 0,25
- FSL has generated average surplus FFO of usd 65 million for the past 5 years
- Write-downs of ship value are one-off and non-cash item
- Current asset deficit is due to accounting classification of bank loan
- FSL is generating strong cash flow from operations.
The way the report is written, I would label it as mechanical, one sided and alarmist. How this report was sanctioned by the firm’s partners is beyond me. A huge “thumbs down” for the independent auditor!.