Samudera Shipping Line

Price target: UOB Kay Hian “unrated”

Gainer from favourable freight rates

UOB Kay Hian (UOB KH) Research believes Samudera Shipping Line is worth a closer look given its current valuations and container freight rates hitting a multi-year high since 2H2020.

In an unrated report dated April 5, UOB KH’s Singapore research team highlights that Samudera is trading at 6.5 times its core P/E for FY2020 ended December 2020 and 0.6 times its P/B for the same period. In comparison, its peers are trading at an average P/E and P/B of 12.1 times and 3.1 times. This, therefore, represents a discount of 46% and 82% respectively

“In addition, Samudera has been consistently paying a dividend well above its payout policy of at least 20%, even during 2016 when it was loss-making. For FY2020, Samudera offers a respectable dividend yield of 3.8%,” the team adds.

The team notes that the container shipping operator, which operates a fleet of 27 vessels including 24 container ships across Asia, has benefited from favourable freight rates driven by e-commerce demand caused by Covid-19 lockdowns and supply disruptions due to port congestion and labour shortages.

“According to Howe Robinson Partners, vessels of all sizes are now seeing multi-year high rates, with their December 2020 report showing an increase of over 50% in the index from their previous quarterly report,” the team writes.

The better freight rates contributed to Samudera’s core net profit for FY2020 growing 330% y-o-y to US$26 million ($34.93 million), after excluding a US$10 million impairment charge.

The team also points out that the better performance improved Samudera’s balance sheet. Samudera’s net cash position grew 143% y-o-y US$51 million in FY2020, which makes up 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 of its non-container ship vessels. As a result, Samudera turned into a net cash position for the first time in 2019,” the team writes.

The team says that the container freight rate remains at a favourable level as of 1Q2021, especially given the Suez Canal incident in March which could force ship operators to look for alternative supply chain solutions, thus presenting opportunities for Samudera. — The Edge Singapore