UOB Kay Hian (UOB KH) Research believes Samudera Shipping Line is worth a closer look given its current valuations, combined with container freight rates that have risen to a multi-year high since 2H2020.
In a 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 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, thus representing a discount of 46% and 82% respectively
“In addition, Samudera has been consistently paying dividend well above its payout policy of at least 20%, even during 2016 when it was loss-making. For 2020, 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.
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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 its non-container ship vessels. As a result, Samudera turned into a net cash position for the first time in 2019,” the team writes.
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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.
As at 2.10pm, shares in Samudera are up 0.5 cents or 1.59% higher at 32 cents.
