CGS-CIMB Research is keeping its “add” call on Penguin International with a target price of 55 cents, as the company is expected to survive this crisis to see revenues pick-up with crude oil prices, despite its latest 1H20 earnings being cut in half.

In an August 27 report, analyst Cezzane See says, “While we expect FY20 net profit to weaken due to lower stock sales and delays in deliveries, Pengiun’s 1H20 net cash position is a positive (net cash/share of 23 cents), while forward price-to-book valuations are undemanding at 0.48 times.”

For 1H20, Penguin reported a 26.2% y-o-y drop in revenue to $50.1 million on the back of fewer build-to-stock (BTS) vessels sold, leading to lower shipbuilding revenue and lower chartering revenue, while gross profit margin (GPM) was lower at 25.2%.

See: Double whammy slashes Penguin International's 1H earnings in half

Overall, Penguin’s key markets are slightly soft, but are stabilising.

In early-August this year, the company guided for no cancellations of any of its BTO contracts but some vessel delivery delays by mutual agreement. It also guided that the offshore oil and gas (crewboats) and maritime protection (security vessels) markets have weakened but stabilised recently; the offshore wind market (windfarm boats) remains fairly resilient for now, while the tourism market (passenger ferries) are the most affected.

“We cut FY20- 22 earnings per share (EPS) by 18.8-20.7% as we lower GPM, especially in FY20. While we forecast a 43% y-o-y drop in FY20 EPS, we pencil in 31% y-o-y growth in FY21 EPS as we believe vessel demand will improve as crude oil prices and industry sentiment pick up,” says See.

Historically, Penguin sailed past the 2014-2016 oil crisis with only one year of net loss (in FY16). Back then, it had lower chartering and BTO contracts and a lower net cash pile. Profits recovered as crude oil prices increased in 2016-2019, unlike some of its other Singapore mid-size offshore peers, which till today are still struggling with low profits or losses.

“FY20 will be a soft year; but given its healthy balance sheet and diversified portfolio, we think that Penguin will be one of the main survivors of this round of economic/crude oil slowdown,” says See.

As at 11.20am, shares in Penguin are trading at 42 cents or 0.5 times FY20 book with a dividend yield of 2.3%.