Samudera riding wave of soaring container shipping rates

Associate Editor

Samudera operates a thriving regional container shipping business providing feeder services between Singapore and other ports in Asia.PHOTO: BLOOMBERG

 

 

SINGAPORE - Over the past year, global shipping rates have hit multi-year highs, driven by a commodity boom, port bottlenecks, shortage of containers and an industry capacity crunch.

The blockage of the Suez Canal in March following the grounding of giant container ship Ever Given simply brought the whole issue into sharper focus.

As the global supply chain tightened amid the pandemic, container shipping rates have skyrocketed worldwide.

London-based shipping advisory Drewry' s notes that the global container shipping market has become highly disrupted, with an under-supplied sellers' market in which shipping companies can charge four to 10 times the normal price to move cargo.

Drewry' s data shows that prices to ship containers from Asia to Europe had more than quadrupled to US$8,399 (S$11,300) as at July. Listed prices are now in the US$12,000 per container range, with some companies forced to cough up as much as US$20,000 a container for last-minute deals on outbound vessels.

According to Drewry' s Global Pricing Index, shipment prices have surged 53.5 per cent in just the past three months. The crunch is so bad that capacity overbooking and advance booking have

become the norm now. This intensifying bidding war among shippers has seen container shipping industry profits doubling every three months since the middle of last year.

Despite an operating profit margin of only 13 per cent, last year' s industry profit hit a record US$26.6 billion. This year' s profit could be multiples of that.

Could we be seeing the beginnings of a container shipping supercycle? This occurs during a sustained period of expansion, driven by robust demand growth for products and services.

It may still be early days yet but the surge in container shipping prices amid the global economic reflation suggests a supercycle wave could indeed be forming.

One company that has been riding this wave is Singapore mainboard-listed Samudera Shipping Line.

Samudera operates a thriving regional container shipping business providing feeder services between Singapore and other ports in Asia. It also operates a bulk and tanker business that transports dry bulk, liquid and gas cargo. Its logistics arm does freight-forwarding, warehousing and agency services.

But container shipping accounts for 90 per cent of its business.

Samudera recently reported that net profit surged around fivefold to US$36.7 million in the six months to June 30, on the back of a 20 per cent rise in revenue to US$209.1 million.

Its half-year earnings work out to 6.9 US cents or 9.3 Singapore cents a share (Samudera' s shares are quoted in Singapore currency, while financials are stated in US dollars).

Gross margin jumped from 7.4 per cent last year to 21.4 per cent during the first half of this year, largely due to surging shipping rates.

Based on its first-half results, the stock is trading at under three times earnings.

Net cash from operating activities jumped to US$39 million in the first half, from US$13 million a year ago, pushing up the company' s net cash position to a record US$80.9 million by June 30.

This is a huge jump from US$51.3 million as at Dec 31 last year, and US$20.8 million at Dec 31, 2019. As a result, Samudera has built up a cash position of US$108.6 million.

This works out to about 28 Singapore cents per share based on 529 million shares. And this is just for the first half of the year - a traditionally slower period.

Come the second-half peak season, with its traditional year-end scramble for shipping space - and not forgetting that this is a year of reflation and recovery - full-year results to Dec 31 could be significantly higher than last year' s.

At the current rate, Samudera' s cash hoard could jump to US$147 million by the year end, which equates to about 37 Singapore cents per share.

Net assets stood at 42.71 US cents as at June 30, translating to almost 58 Singapore cents.

Despite reaching historic highs, Samudera' s stock is still trading near its book value.

Interestingly, it is among the 150 most traded Singapore stocks this year by turnover ($540,000 per day), with a 30-fold increase in trading turnover from last year, when it ranked as a top 400 stock by turnover (at $18,000 per day).

Samudera' s nearest peer comparison is Thailand' s Regional Container Lines, which is trading at 3.2 times its book value, 5.5 times price-to-cash and two times price-to-sales.

Samudera is well covered by analysts.

Ms Tracy Lim of SAC Capital reckons the company has " pricing power" and will continue " riding the wave of higher freight rates" for a while yet. " The barriers to entry in this sector have increased with the higher vessel prices and elevated charter rates," she wrote several weeks ago.

Pointing to its " flawless balance sheet" , which is in a net cash position, analysts reckon Samudera is one of the world' s " cheapest" container shipping stocks.

Meanwhile, the capacity crunch continues. Newbuilds are expected to come on stream only in 2023, and even so, at the rate of 15 per cent per year.

Industry insiders reckon that if current rates are sustained, owners of carriers like Samudera could potentially make 10 years of profit within the next two years.

If so, this is a ship worth watching.