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Sunday, September 18, 2005

Sembawang Kimtrans @ 51 cts ( Marine / Singapore ) 11 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)

Main issues

1.High forward PE valuation of 20X ex-extraordinary items

2.Limited further balance sheet leverage potential

Sembawang Kimtrans' share price has been on an upward surge since announcing an excellent set of 1H05 results, but what was a bargain at 20 cents no longer seems so at 51 cents.

The company is involved in marine logistics and integrated logistics, which account for about 60% and 40% of revenue respectively. However, it is clear that the market has been revaluing it primarily due to its positioning in the marine logistics business of transporting coal in Indonesia, which is now recognised as having strong potential given the high price of oil generating demand for alternative energy resources.

All this is very well, I agree with the underlying trend, but ultimately there is a reasonable price for everything and the current price tag for Sembawang Kimtrans seems to have gone overboard. For one, it is now trading at 24 times trailing PE, an extraordinary valuation putting it in the league of marine/offshore players with much greater scale/much better growth prospects like Labroy Marine (S$400M revenue) and KS Tech (Temasek-backed oil & gas with strong China prospects), and significantly higher valuation than Jaya (20 times PE, excellent profit margins ~50%) and Chuan Hup (whose PE is half SemKimtrans!).

Read the company's 1H05 P&L statement. The profit growth would not be as euphoric if one takes away the extraordinary gains of ~S$3.5M due to gains on vessel disposals and foreign exchange gains; the net profit would look more like S$4M, or about 1.3 cents EPS, or 2.6 cents annualised (seems logical since this industry is not really that seasonal), or 20 times forward PE ex-extraordinary items, for those who argue that trailing PE is an unfair valuation measure for a growth stock. That still seems excessive to me. Furthermore, its balance sheet suggests limited capital to fund growth: short-term + long-term debt add up to about S$60M, approximately equal to equity capital implying a gearing of 1. That is already quite aggressive and suggests it might need to go to the market to raise funding in the future.

To me, that is a possible reason why its share price has been surging up recently. Some might have noted similar phenomenons for other stocks in the past; I can remember Fu Yu and Huan Hsin just recently. Remember what happened to them after they got the money. Of course, that is purely a conjecture; however, in itself the price valuation for SemKimtrans is just unattractive for any value buyer.




Blogger Mike said...

Totally agree with you.At such valuation any upward trend is only due to momentum play and also lot of inhouse players.

9/20/2005 7:30 AM  
Blogger Mike said...

Attached another brokers' take on different stocks. I kept many of them. Just for reference.

Brokers' Take


Creative Technology
July 14 close: $13.70

APPLE has announced its Q3 FY05 results. Its iPod digital audio players continue to gain ground, as Apple sold 6.16 million units in the quarter, up from 5.31 million units in the previous quarter. As such, overall demand for digital audio players appear to be healthy.
Apple's results suggest that Creative could be facing company-specific issues, as opposed to an industry-wide problem. Unlike Apple, whose iPod gross margin is about 20 per cent, Creative's gross margin for its digital audio players is probably way below 20 per cent.
The share price for Creative bounced strongly yesterday, possibly due to the supportive comments by Microsoft chairman Bill Gates over the weekend. We warn that Creative still faces the risk of further erosion to its book value given the possibility of an investment or inventory writedown.
Creative is currently trading on 1.0x FY06 P/BV, having recovered from the selldown following its profit warning. However, our current forecast has not discounted any possible writedown, which could reduce its book value. We maintain our 'Reduce 2' rating on the stock, with a price target of $8.40. Our price target assumes it would trade to a gross dividend yield of 8 per cent.
POSITIVE comments from Microsoft chairman Bill Gates that Microsoft is working hard with Creative and other manufacturers of MP3 players sent Creative's share price soaring by 13.2 per cent to close at $12.90 on Wednesday.
We do not think fundamentals have changed and maintain our 'sell' recommendation for the stock.
Creative has worked closely with Microsoft in designing the Portable Media Centre, a handheld consumer electronics product using Microsoft's Media Player software. It functions as MP3 player, photo viewer and video player.
Mr Gates had made similar positive remarks when Creative unveiled the Zen Portable Media Centre during CES 2004 trade show. It is not surprising for Microsoft to be supportive of Creative given the competition between Microsoft and Apple.
New products developed by Creative are likely to use Microsoft's software as well. Margin pressure remains a concern. The MP3 player market is becoming more competitive and competitors such as Apple have cut prices to clear inventory.
In addition, mobile phone manufacturers are adding MP3 function to high-end phones, which may dampen demand for MP3 players. Creative's gross margin has contracted from 32.9 per cent in 4Q04 to an estimated 20 per cent in 4Q05.
Creative is expected to report operating losses in the June quarter, stating softer-than-expected demand for MP3 players. We believe MP3 players have lost its lustre and it is difficult for Creative to find another growth driver beyond MP3 players.
Creative expands the war against Apple and iPods
Singapore company's Zen players just the beginning, says firm's CEO
Benny Evangelista, Chronicle Staff Writer
Monday, August 1, 2005

9/20/2005 7:31 AM  
Blogger DanielXX said...

Hi mike,
So what do you think about Creative? They're going to be in trouble if they don't find some category killer product soon. They haven't had any since their soundcard days.

9/20/2005 9:54 PM  
Blogger Mike said...

Agree with you. We have to see the market response for the recent launch of sound card.

Theoretically by data, Creative is stronger for the last 3 months of the year.

9/30/2005 8:57 PM  
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10/13/2005 9:16 AM  
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10/21/2005 7:17 AM  
Anonymous Anonymous said...

i chancced upon your site, whilst searching for information on sembawang kimtrans.

well, from the looks of the share price performance of this stock, looks like you might have got the call wrong, since you rely puirely on looking at forward p/e, which obviously is forward looking, and the market seems to have priced in stronger earnings going forward.

care to do a review on this counter, given where the share price is now?

8/21/2006 11:28 AM  
Blogger DanielXX said...

Hi Anonymous,
It looks like I was wrong to make my earlier hotstocksnot call at 51 cts; at current price 68, and adjusted for 1:4 bonus issue = 85 cts I was definitely way off ;-P

If you ask me to do an evaluation now, I'd say stripping away extraordinary gains it still does ~100% better than 1H05 BUT not substantially better half-on-half (ie 1H06 vs 2H05), maybe ~30% growth. It's trading maybe ~20X trailing PE.... has some interesting tie-ups and directors are buying. I would not consider it a hot-stock-not; however, I wouldn't buy it at its current valuation though.

8/21/2006 12:50 PM  
Anonymous Anonymous said...

hi daniel
tks.. fortunately i didnt read your blog before i bought the stock, so i do have some shares in the company, and been rewarded pretty handsomely in the past 9 mths or so, with dividends and the price run up...

but nevertheless, great blog, very interesting. good to hv alternative views away from the herd...

9/07/2006 11:45 AM  
Blogger DanielXX said...

Hi Anonymous,
I appreciate your balanced views (as opposed to some who simply tear into me and criticise my picks) :-) Good luck with your investing! You might be interested to read my HotTrendsWatch blog --- it gives you some stockpicking ideas.

9/07/2006 12:07 PM  
Anonymous Anonymous said...

hi daniel,
whats the point in tearing into you if you got a call wrong? and if u got it right and they made money, they wont share it with you right? noone can be right all the time. money is to be made by everyone what...tsk tsk...

looking at going into semb kim again, given i took some money off the table at 69cts...

ok i will check out ur stockpicks at the other blogsite. want to see what comments you have on k1 ventures....


9/08/2006 2:46 PM  

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