SINGAPORE (June 3): Phillip Capital is downgrading its recommendation on Penguin International to “accumulate” from “buy” with a lower target price of 55 cents from 88 cents previously.
This came following Penguin's business update in its recent AGM, which forecasted a challenging outlook due to the Covid-19 pandemic and the collapse in oil prices.
In a Wednesday report, analyst Paul Chew says, “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.”
Charter rate for crew boats will be under pressure, demand for new vessels is down and ferry customers will suffer from the pandemic.
In the 2016 downturn, Penguin swung into losses and revenues plunged by 72% y-o-y to $33.4 million. But the difference in this cycle is the larger net cash on the balance sheet from $24 million in end-2015 to $60 million in end-2019, as well as 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 0.7 times, with a range of 0.5 to 1 times. Penguin can ride out the downtrend in the industry with their large cash hoard,” says Chew.
As at 12.00pm, shares in Penguin are trading at 54 cents with a 3.3% FY20 dividend yield.
