Post-script: A day after Lim & Tan Securities' report (below), Samudera announced its FY20 results: US$7.2 million in profit attributable to shareholders (+85% y-o-y). This was after taking a US$9.5 million impairment loss on a number of its ships.


Excerpts from Lim & Tan Securities report

World’s cheapest container shipping firm

We initiate a non-rated report on Samudera Shipping Line (share price: 28.5 cents).

We think Samudera is relatively undervalued at 7.0x forward PE (based on US$17 mln base case core net profit) and 0.6x P/B to its peers who are trading at an average of 10.1x P/E and 2.5x P/B (representing 30.1% and 75% discount respectively).

Samudera Cheapest 2.21We think that based on the economic tailwinds generated by Covid-19, profit-making vessels and that almost all of its peers trade above book, Samudera has little reason to be trading below book.

As such, we think a re-rating on Samudera is highly warranted and even if it trades at 50% P/B discount to peer average of 2.5x P/B, this would translate to a share price of S$0.60.

Given consistent dividend pay outs historically, the increase dividends from Samudera’s profitability should be the catalyst for further price discovery.

Covid-19 is the perfect storm for the recent boom in the container shipping industry.

On the demand side, penetration of e-commerce has soared due to lockdown measures, resulting in increased need for container shipping.

On the supply side, there exists reduced capacity due to port congestions and lack of manpower to work the docks.

This bottleneck has caused a surge in freight rates, a direct revenue driver for Samudera.

The reason we chose Samudera versus other shipping firms is as such - While the container shipping industry has soared, along with its stock prices, Samudera remains a laggard.

Stock prices of some of its peers have soared c.10x from its 52 weeks low but Samudera’s share price has barely reached c.3x from market lows.

We think that with the announcement of FY20 results, together with its increased dividends, Samudera can and should trade at a much higher price as it has still room to grow.

Samudera’s balance sheet is robust and is in a net cash position that represents 26% of their market cap.

They have conscientiously improved their balance sheet by disposing vessels, changing to chartered vessels and abolishing unprofitable routes.

Unlike its heavily geared peers, Samudera has no immediate threat of solvency issues should another crisis happen.

The shipping container industry has been plagued with oversupply issues for many years, and Covid-19 provides a chance for shipping firms to increase their profitability.

As such, we are cognizant that when the threat of Covid-19 is reduced due to vaccines rollout, the super normal profits of the shipping industry will mean revert to normal with lock downs being lifted and when ports get less congested.

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