SAC Capital analyst Lim Shu Rong is optimistic about Samudera Shipping Line as it rides on a “bumper year” for shipping lines.
In an unrated report dated March 15, Lim notes freight rates are still “buoyant and favourable” to shipping companies as the capacity imbalance persists, adding that the China containerized freight index was up 76% y-o-y as at March 11.
With that, the company has chartered in an additional six newly built vessels, of which two have already been deployed and the rest will be delivered in 4QFY2022 ended December.
Furthermore, long term charter contracts have already been secured for these vessels, bringing the total number of chartered-in vessels to 24, which is about 71% of the total fleet size.
Most of the vessels are chartered in for 18 months, and Lim says that although charter hire rates trends in line with freight rates, longer-term charters has helped Samudera to preserve some margin as it is able to lock in lower rates as compared to the spot rate.
However, Lim is less upbeat on Samudera’s operating margin, which is expected to come under pressure, due to the Russia-Ukraine conflict.
This has raised bunker costs and caused delays at ports, which are expected to raise operating costs due to extended transit time, writes the analyst.
Port congestion also reduces the number of vessel calls, as Samudera earns from more vessel trips due to most of its chartered-in vessels being on time charter.
A time charter refers to a time-bound agreement, where a vessel is leased out to a charterer for a fixed period of time.
During the FY2021, Samudera Shipping Line posted a record year, with both revenue and net profit at their highest for the past five years.
During the year, the company saw higher freight rates and volume handled, which drove revenue up by 52% y-o-y to US$526.7 million ($717 million). Samudera Shipping Line’s gross margin rose by 19.4 percentage points to 27.9% and was reflected in its net margin of 24.9%.
In the FY2021, Samudera’s net profit saw a massive surge of 1678% y-o-y to US$128.6 million, leading the company to declare declared a total dividend of 14 cents/share for FY2021, translating to a dividend yield of 18.4%.
As at end-December, Samudera reported a net cash position of US$169.5 million, of which US$53.8 million would be paid out as dividends.
On this, Lim notes that Indonesia accounts for 28% of Samudera’s total revenue for the FY2021. This includes domestic routes and international routes with Indonesia as its destination.
Indonesia has cabotage rules that mandate that only Indonesia flagged vessels can be used in domestics shipping activities and these vessels can only be registered under companies that are fully or majority owned by Indonesians
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Cabotage refers to the right to operate transport services on sea, in the air, or other modes of transports within a certain territory.
With this, Samudera has established a joint venture (JV) entity with a minority stake, and it will own Indonesia flagged vessels to be used for domestic routes.
“Contribution from domestic shipping will be captured under share of associates,” writes Lim.
As at 4.24pm on March 17, shares of Samudera traded at 76 cents, up 1 cent or 1.34% higher from its previous close.