Berlian Laju @ 31.5 cts ( Shipping / Indonesia ) 9 comments
Final Poll Results: 3:2
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1. Chemical tanker and oil tanker market rates may have peaked
2. Substantial shareholder sale disguised as IPO
Berlian Laju already has a primary listing in the Jakarta stock market and recently conducted a secondary listing on the SGX with little fanfare. Given that oil-related stocks had lost some of their shine due to stagnating oil prices (a casualty being Chemoil which cancelled its highly-touted IPO on the SGX), the company sold its shares at ~30 cents, a discount to its Indonesia share price of ~35 cents.
Based on its current price on the SGX, it trades at 15X PE. For a shipping stock, it is hardly attractive. However, it has one of the world's top chemical tanker fleets, and also has significant interests in oil tankers, and gas tankers to a lesser extent. If one has learnt anything about shipping the past few years, it is that PE ratios mean nothing; a high (or even negative) PE may suggest that rate recovery is near, while low PEs often signal peaking of the cycle. So let's take a look at the prospects of Berlian Laju's various segments.
60% of Berlian Laju's fleet are chemical tankers by number, but of the three main segments --- chemical tankers, oil tankers, gas tankers, revenue contribution by the first two are nearly equal, with the third an insignificant 5%, according to HY06 revenue split. By gross profits, the oil tanker segment outweighs the chemical tanker segment by a 3 to 1 ratio. Consider that as late as FY04, the chemical tanker segment's revenue was >3X that of the oil tanker segment, and boasting profits 60% more than the oil tanker segment. Although the rise of the oil tanker segment was partly due to a doubling of its fleet while the chemical tanker fleet remained stagnant, the fact remains that the oil tanker segment had been driving the topline and more importantly, bottomline growth of Berlian Laju the past 2-3 years primarily through margin expansion, a manifestation of extremely high oil tanker charter and freight rates.
Chemical tanker rates have already corrected over early 2006; the segment gross profits dropped by 40-50% in HY06 over HY05, on stagnant revenue. Oil tanker rates appear to have remained strong at time of IPO, yet consider the following projections (picked up from Forbes Asia) --- crude oil tanker charter rates have fallen recently to US$70,000/day, and are projected to keep dropping to probably half that rate by next year. This is due to progressive delivery of new vessels that is seen to increase global fleet capacity by ~7% while demand for oil tankers is expected to rise only 4%. Yes, the turn of the shipping rate cycle is starting to come for the oil tanker segment as well, as new vessel deliveries from the shipyards start to come on stream progressively. Demand rises, supply crunch, rates rise, demand slows, supply shock, rates fall. This is a cycle that will never change.
Given that the outlook for both key segments look grim (the gas tanker segment is insignificant), the earnings may have peaked for FY05-06. The clincher is the structure of the company's SGX secondary listing. All the 550-600M shares were vendor shares, from the main shareholder's accounts (from 63% of total shares before IPO to 48% after). What is this but a share disposal disguised as a public IPO? The purpose of the exercise appears not to raise funds (which would have been welcome given that the company is already strongly geared at debt/equity ratio equal to parity) but rather to mobilise a massive dose of liquidity and effort to sell a big portion of shares at one go. Looking at the outlook, I can understand why. And if the main shareholder is selling, why should you buy?
I agree that Berlian Laju is a hot-stock-not: Yes/No