Singapore-listed Indonesian company Samudera Shipping Line — once a little traded, largely forgotten owner of bulk carriers — has surged 127% since the lows of March last year.
Over the years, it has transformed into a regional container shipping line and garners most of its revenue and earnings from container shipping. Now, market watchers are indicating that the surge in global freight rates will lift all ships — including Samudera’s.
According to a report by Lim & Tan Securities, American research firm Descartes Datamyne says that the number of container ships shipped from Asia to US climbed 23.6%, a record for the month of November. Global box trade recovered in 2H2020, and the overall estimated growth is around 5% to 6% in 2021.
Because of firmer freight rates, values of containerships have firmed. Last year, more than 125 deals were recorded, which Lim & Tan says is a record high.
Vessel prices saw significant rises, with the value of vessels of different sizes and age more than double from the low point in mid 2020, Lim & Tan adds.
Though Samudera’s revenue fell 6.9% from US$373.8 million in FY2019 to US$347.9 million ($458.2 million) in FY2020, the cost of sales also fell US$355.9 million to US$318.3 million over the same period, which resulted in a 64.9% increase in gross profit to US$29.6 million in FY2020.
Net profit in FY2020 rose 73.8% to US$7.3 million and would be higher if not for a US$10.6 million impairment charge for six vessels. FY2019’s net profit was lower at US$4.2 million. For Samudera’s shipping segment, the container volume handled increased 7.5% from 1.2 million TEUs in FY2019 to 1.3 million TEUs in FY2020.
Operating cash flow is also strong, and increased from US$31.0 million in FY2019 to US$39.8 million FY2019. Cash flow generation is very strong as OCF is more than gross profits, and the free cash flow is around US$39.5 million compared to US$13.5 million in the previous year.
Samudera’s trade routes are usually connecting various ports in Southeast Asia, the Indian Subcontinent, the Far East and the Middle East. Charters its bulk carriers are based on voyage charter and time charter.
Voyage charter is the hiring of a vessel and crew for a voyage between a load port and a discharge port.
The charterer pays the vessel owner on a per-ton or lump-sum basis while the owner pays the port costs, fuel costs and crew costs. Time charter is the hiring of a vessel for a specific period of time. The owner still manages the vessel but the charterer pays for all fuel the vessel consumes, port charges, commissions and a daily hire to the owner of the vessel.
For its container vessels, Samudera operates a hub-and-spoke system between its hub in Singapore and other “spoke” ports in Asia, as well as inter-regional container shipping services.
Based on Samudera’s FY2019 annual report, it had 24 container vessels, two chemical tankers and one gas tanker as at April last year.
Since container freight rates for the major global routes such as Shanghai-Rotterdam, Shanghai-Los Angeles, Shanghai-Genoa and Amsterdam-New York moved up sharply in 2H2020 (see Chart 1), regional freight rates have also firmed. Some market watchers expect Samudera’s earnings to benefit from this trend.
In the event that freight rates do not rise much further this year, Samudera’s sound balance sheet is likely to stand it in good stead. As at Dec 31, 2020, the company’s cash and bank balances stood at a healthy US$80.8 million, which is more than enough to cover both its short-term and long-term debt totaling US$29.8 million. The company’s current ratio of 2.5 times reflects strong short term liquidity, and solvency is also good for the company.
This is because current assets are more than enough to cover total liabilities, the company is net cash, and its operating income is more than four times its financing costs. The company’s borrowings are all secured with collateral, which allows it for lower interest for its financing costs.
The cash and bank balances of the company excluding pledged deposits grew from US$47.8 million to US$76.8 million for the same period as well.
The equity component of the balance sheet is also high quality, as almost two-thirds are made up by retained earnings over the years.
