The discussion thus far has been interesting. There has been debates on various issues such as the requirement of a moat for a company in order to be considered an investment.
I have some comments on various points.
(13-09-2019, 10:59 PM)Shiyi Wrote: [ -> ]Penguin's investment in Marco Polo Marine is baffling.
Wondering if any impairment is necessary?
Accounting treatment for their investment I believe is mark to market on the listed prices. In short, any impairment or MTM gains will be reflected quarter to quarter and won't hit at one go in terms of impairment. Its included under changes in fair value of equity investment in the reports.
(15-09-2019, 12:38 AM)GenS70 Wrote: [ -> ]The argument on Penguin is or is not a value investment is baffling to me too! Is stock in a certain industry is or is not a value investment regardless of the share price?
Anyway I think this forum maybe shd define what is the definition of value investment otherwise we hv unhealthy discussion.
Or maybe we shd not get hung up with whether one stock fit the criteria of value investment, but whether a stock is a buy with good risk reward at a certain price or current price, and discussion shd focus on discussing facts and be discerning on opinions, after all we are all entitled to our opinion and this forum purpose is to share.
I felt great when someone comments "Shipbuilding is definitely not a business for value investing.". That's simply lovely. Only when there are generalisations like this would there be inefficiencies in the market and allow for gems to be found in industries that are facing issues and downturns at the moment. The sweeping opinion overlooks the research into specific companies and their performances. Simply awesome. But to GenS70's point, my opinion is that value stocks are not restricted by being within or not within an industry/sector. If a shipbuilder is now holding $1 cash unencumbered and trading at $0.50, would that be a value investment? Of course it would!
(15-09-2019, 09:10 AM)dydx Wrote: [ -> ]I suppose whether Penguin at the last done share price of $0.545 - giving a current market cap of $119.99m (based on its outstanding 220.17m issued shares) - is still a value investment opportunity for the average serious longer term investor, would depend on his own assessed fair intrinsic value of Penguin as a business and as a stock, backed by the underlying business and assets, including its projected future earnings and assessed growth potential.
If the investor's own assessed fair intrinsic value of Penguin as a business is at least $200.0m, or $0.91/share - bearing in mind the latest (30Jun19) NAV is already $156.8m, this FY19-1H's NP was $8.365m and therefore full-year NP may well come in at $20.0m, and the business is poised to grow further - it would appear reasonable to assume/believe that Penguin at $0.545 remains an attractive value investment, as a 67% upside towards $0.91 plus all the dividends to come appear very attractive. As a comparison, if the investor's own assessed fair intrinsic value of Penguin as a business is only $150.0m, or $0.68/share, it would appear as a less attractive value investment, even though a smaller 25% upside towards $0.68 plus all the dividends to come appear fairly attractive still. As always, as investors we should do our own evaluation and calculations.
Currently as I speak, the market value of Penguin is $122.2m. Latest NAV reported is at $156.8m (0.78 PB). NCAV is $63.3m. Cash and equivalents and short term deposits add up to $48.5m. How I would view the company is that the company is currently being valued for its business at a value of $78.1m (122.2m - 48.5m + 4.4m). I couldn't get any seasonal trends of income due to the lumpy nature of its revenues. But assuming for this purpose that the full year comprehensive income is twice of the reported 1H numbers, and hence $14.7m, the current PE ratio (ex cash) sits at 5.3 times.
The nearest comparison to this company I could find listed is Austal that is listed on ASX. This is labelled as a global defence prime contractor and trades at 23.86x PE. Austal basically builds vessels for the US Navy as well as patrol and auxiliary vessels to defence forces around the world. What's interesting is that all of its vessels are made of aluminium, not steel. While I recognise that the overlapping business portion is in the patrol ships (which they supply to the Australian Department of Defence) and ferries, the larger part of its business lies in the larger vessels with the US Navy. This probably helps in assigning a premium to the valuation of the company.
What's interesting is the extent of the potential of aluminum ships that can be built. Penguin has been building boats for our very own SCDF and armored security boats for Nigerian owners. They definitely seem like they are expanding into the defence aspect of shipbuilding. How much can they scale up with respect to their boat sizes? Definitely doesn't seem possible at this point of time, but they do have the technical know how of handling aluminum hulls. Aluminum does seem to be replacing steel hulls in naval applications given the current advancements in technology, and that bodes well for Penguin.
Pros
- Aluminum is one third the density of steel
- With a lighter body, it allows for much better fuel economy
- lighter bodies also means faster speeds, which is crucial in defence related applications
- Aluminum require less maintenance cost as it does not need protective paint except below the water line where the fixtures and and fittings are touching the hull surface, this is due to higher corrosion resistance
- Aluminum boats have a much higher resale value due to its recycle value
Cons
- upfront cost of aluminum is much higher than steel
- structural and temperature related resistance compared to steel which is compensated with technology
Not going all the way to 23x PE, but just giving it a modest PE of 10x, the resulting market value I would deem fair would be at $147m + $48.5m - $4.4m. That's about $0.86 per share. That's probably a rough guide I am looking at. I do think for the past ten years, the shipping industry has been in a downcycle and that has unfairly penalized Penguin International. The focus of its business is not the headline tankers, container ships and bulk cargo vessels that the big shipyards construct and thus suffered over the years. This, in my humble opinion, has given the shipping industry a bad impression as an investment candidate. That makes it great for Penguin.
From when I started looking and buying into this, it still looks like a value buy without even taking into account the upside of further expansion of production capacity. That's where I stand at the moment and I sleep soundly holding this in my portfolio.