Penguin International Ltd – Cash to ride this cycle June 3, 2020 682

PSR Recommendation: ACCUMULATE Status: Downgraded
Last Close Price: S$0.445 Target Price: S$0.550
  • Penguin provided some business updates in their recent AGM. The outlook is challenging due to Covid-19 and collapse in oil prices.
  • Charter rate for crew boats will be under pressure, demand for new vessels is down and ferry customers will suffer from the pandemic.
  • We downgrade to ACCUMULATE from BUY. Our FY20e earnings is cut by 52%. The target price is dropped to S$0.55 (prev. S$0.88). We change our methodology from 5x PE (excluding cash) to a P/BV of 0.7x FY20e (historical 10-year average). The net cash of S$60mn (end-Dec19) will allow the company to ride through this turbulence. Net cash is now 52% of market capitalisation.

 

Downgrade to ACCUMULATE with a lower target price of S$0.55 (prev. S$0.88).

The biggest worry will be trade receivables and inventory of vessels built to stock. During such a stressed environment, the risk will be elevated from customers defaulting payments and inventory becoming unsold. In 2016 downturn, Penguin swung into losses and revenues plunged by 72% (Figure 2).  The difference in this cycle is the larger net cash on the balance sheet (from S$24mn end 2015 to S$60mn end 2019) and a more diverse portfolio of vessels built.

With such an uncertain earnings outlook, we will use price to book as a gauge to valuations.

The 10-year price to book average is 0.7x, with a range of 0.5x to 1x. Penguin can ride out the downtrend in the industry with their large cash hoard.

 

 

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Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has almost 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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