The sharp rise in export volumes from Asia and decline in shipments from the rest of the world has skewed global trade flows, causing bottlenecks at ports and throwing the flow of containers into disarray, driving up shipping prices in the process.

It remains unclear how long the problem will last, with estimates of a return to normal being extended in recent weeks from later this year to early 2022.

Maersk reported a record net profit of US$2.7 billion in the first quarter, up from US$209 million in the same period a year earlier.

https://www.scmp.com/economy/china-economy/article/3135852/coronavirus-shipping-rates-stay-unprecedented-levels-until

In Mar 2021, the disposal of vessels (Sinar Sabang US$6.75m, Sinar Sumba US$6.75m, Sinar Ambon $0.709m) would increase the cash hoard by an additional US$14.2m, adding up to US$95m.

According to the latest FY2020 Preliminary Financial Statements, operating cashflows before working capital changes reached US$31.8m for the full year. I am of the opinion that the first half operating cashflow before working capital changes will be much much higher. That belief stems from both the article on Samudera Shipping Line on Business Times and the recent Cosco Shipping profit guidance with Q1 2021 earnings set to exceed full year 2020 earnings and increase to 2.5 times of Q4 2020 earnings. Mr Mulia commented in the article that " It became a seller' s market for us, a very rare seller' s market. It' s always been cyclical, but at the moment it' s a seller' s market." Conservatively, I would add another US$20m to the cash pile for 1H 2021, adding up to US$115m.

 

When faced with a cash hoard, what can the Group do that can boost shareholder&rsquo s value? There are some very straightforward ones.

 

2) Share Buyback &ndash in 2005 as per previously mentioned, Samudera Shipping Line accumulated significant cash on the balance as well. In that year, they commenced share buyback up to a total spending of circa S$5.08m. This translates to about 3% of the current market capitalisation.

 

3) The last and actually most desirable outcome for long term investors, is to invest into more vessels and equipment, increase gearing on the business and in turn improve returns.

Shares up 26 per cent this year, closing at a 52-week high of S$0.315 on Monday, but brokers say it remains undervalued

 

RECENT shortages and disruptions in the shipping industry have generated interest in Samudera Shipping Line, a container shipping line serving the Asian region. The stock is up 26 per cent this year, closing at a 52-week high of 31.5 Singapore cents on Monday, but brokers say it remains undervalued.

 

Lim & Tan on Monday initiated coverage of Samudera with a " buy" call and a target price of S$0.49, which implies an upside potential of 55.5 per cent. Meanwhile, UOB Kay Hian (UOBKH), in an unrated note, highlighted the counter' s respectable dividend yield.

 

Covid-19 lockdown measures have boosted e-commerce sales, creating additional demand for container shipping. On the supply side, the pandemic has led to port congestion and lack of manpower to work the docks - resulting in reduced capacities.

 

These demand and supply pressures have been beneficial for Samudera, analysts said, pushing freight rates up and supporting Samudera' s revenue.

 

" The shipping container industry has been plagued with oversupply issues for many years, and Covid-19 provides a chance for shipping firms to increase their profitability," said Lim & Tan.

 

Samudera is in a particularly good position because of its healthy balance sheet. The Indonesian shipping company' s net cash pile is roughly half of its market cap, which would eliminate any immediate threat of solvency issues should another crisis happen.

 

Its cash position should also support a steady dividend. UOBKH noted that Samudera has, over the last six years, paid out more than 20 per cent of its earnings in dividends. It also paid a dividend even when it reported losses in 2016.

 

Samudera' s net profit increased 85 per cent year on year in FY2020, to US$7.2 million.

 

Lim & Tan is expecting net profit to rise to US$20 million in FY2021.

 

Based on this projection, Samudera is trading at 5.5 times' forward earnings. This is much lower than the average of 8.7 times at which Samudera' s peers trade, Lim & Tan says.

 

As the outlook for the container shipping industry has improved, the shares of shipping container companies have soared - some by as much as 15 times their 52-week lows. Samudera, meanwhile, is only three times its 52-week low.

 

Samudera' s peers also trade at an average of 2.4 times their book values while Samudera is trading at 0.56 time its book value.

 

" We think that Samudera can and should trade at a much higher price as it has still room to grow," Lim & Tan added.

 

While the " supernormal profits" of the shipping industry will not last, the brokerage believes there is an opportunity for shareholders to benefit from favourable industry winds in 2021.