Excerpts from UOB KH report
|Beneficiary Of Favourable Container Freight Rate, Trading At A Huge Bargain
With a fleet of 24 container ships, Samudera provides container shipping transportation of cargo in Asia.
Samudera 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% yoy, excluding impairments.
For 2020, Samudera is trading at 6.5x PE and 0.6x P/B vs peers’ average of 12.1x PE and 3.1x P/B.
Net cash forms 50% of its market cap.
• Established container shipping operator with good track record. Samudera Shipping Line (Samudera) 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 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.
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.
In an interview with The Business Times on 29 Mar 21, Samudera 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’s core net profit of US$26m grew 330% yoy, 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’s net cash position grew 143% yoy to US$51m, up from US$21m in 2019. Samudera’s net cash forms around 50% of its market cap.
Historically, Samudera 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 turned into a net cash position for the first time in 2019.
• Trading at a deep valuation discount vs peers. Samudera currently trades at 6.5x 2020 core PE and 0.6x P/B vs peers’ average of 12.1x PE and 3.1x P/B. This represents a discount of 46% and 82% respectively.
In addition, Samudera has been consistently paying dividend well above its payout policy of at least 20%, even during 2016 when it was loss making.
For 2020, Samudera offers a respectable dividend yield of 3.8%.
|• Near-term key catalysts include:
- Earnings and dividend surprises.
- Commencement of share buyback.
- Potential privatisation or takeover target given the depressed valuation.
Full report here.