I feel history today and do a quick study. Is like a review after a great battle. I am not vested in Oil and Shipping Industry directly but that doesn't mean I should not read up on it. So whatever I find and understand is subjective and conclusion could be wrong.
Started with an article from BT dated FEB 16, 2016.
http://www.businesstimes.com.sg/transport/sembmarine-cosco-buffeted-by-s1-billion-in-combined-q4-losses
"THE strain of low oil prices on the offshore and marine sector was in full display on Monday, as two heavily-exposed Singapore-listed companies reported a combined S$1 billion in fourth-quarter losses."
"The losses were partly the result of the reversal of profits already recognised for the construction of oil rigs and ships that might now never be delivered."
Next, reading latest reported AR.
Profits for 2Q 2016 is $10,737 ('000). Down from 2Q 2015 $113,167('000)
So will we see even a larger crawl back later ?
Debts
And their debts reported increased quite significantly.
Then, i check other announcement and realised they still do Share Buyback. This doesn't feel good when we clearly know the market is not working and if we are using debts to push up prices. What are they thinking ?
http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_Content&B=AnnouncementLast3MonthsSecurity&F=LYPA1524Z2VRQH6X&H=776398d18e8e71d5142d62155ee307be6b3ba12f8d4ccc813ae7660cfa29046b
Final check on the chart, and I can't help thinking is this industry boosted by loose monetary policy which like Shale Oil build up from debts and more debts except differ in cost foundation and which later pushes it further down the road.
Will it get worst ?
See the chart below.
http://www.bloomberg.com/news/articles/2016-06-28/singapore-s-millionaires-humbled-in-local-bond-restructurings
Conclusion
NAV is $1.2029. Share Price is $1.32. Considering the risk and returns, does it make sense ? Compare to another industry like Property which is still earning quite ok are at 30% discount to NAV. Opportunity cost is not my cost today when it can be really toxic.
Cory
20160807
Good summary on Sembcorp Marine and O&G industry in general !!! 👍👍
ReplyDeleteThanks STE ! Pokemon Go Time ! :P
DeleteProperty are 30% discount because they are highly gear, don't be mislead by their current performance. If world economy heading for a long drought, they(property counter, those with huge debt) could be the next swiber.
ReplyDeleteLook at Lian Beng for instance, debt as reported in their current report..."Total borrowings increased from $292.9 million in FY15 to $440.6 million in FY16 mainly due to additional bank loans drawn down to
finance the purchase of investment and development properties located at 247 and 249, Collins Street, and 596, St Kilda Road, Melbourne,
Australia, respectively, as well as loan to an associate and loan drawn down for working capital purposes and for the acquisition of State
Rich International Limited which owns an investment property at 4190, Ang Mo Kio Ave 6, Broadway Plaza ."
Never buy those who use borrow money to expand, good time they soar, bad time come they fold. Vested only in company that got huge cash and zero debt or min debt, Even if they face slowdown for a few quarter , we are confident that they will survive.
Oxley to me has the trait of over grown using excessive leverage n over optimism from the founder!
DeleteHi Unknown, leverage is a double edge sword. Yes we need to watch property carefully too.
DeleteCory
Like to add, most loan is secured with property in development. I think there maybe certain level of protection if the company failed. And with the discount, there is some MOC compared relatively.
Deleteduring good times prior to oil crisis, bank loans were made against vessels which are incoming generating assets as well. MOC were high too.
ReplyDeleteI think that where we catch ones assumption naked. Secure on vessel vs secure on property. The MTM can be quite different. eg. 2nd hand Car.
Delete