Penguin International BTM 0.00% has reported earnings of $16.7 million for the FY2023 ended Dec 31, 2023, 58.6% higher than its earnings of $10.6 million in FY2022.

 

For the full-year period, earnings per share stood at 7.6 cents, increasing from 4.79 cents in the previous financial year.

 

Revenue for FY2023 also increased 34.9% y-o-y to $182.4 million, due mainly to an increase in the number of stock vessels sold and an increase in chartering activity y-o-y. 

 

As a result, gross profit for FY2023 increased 45.6% y-o-y to $52.3 million, with improved margins from shipbuilding and chartering activities.

 

As at end-December, cash and cash equivalents stood at $19.8 million.

 

A final dividend of 3.42 cents per ordinary share has been declared for FY2023.

 

The company is currently experiencing some supply chain disruption and cost escalation from European suppliers shipping through the Red Sea, although the current impact on deliveries and margins is minimal. 

 

Penguin&rsquo s management is in talks with affected suppliers and assessing the situation regularly, but notes that it expects materials related cost uncertainties to persist for the foreseeable future.

 

THE closing date for the offer to acquire and delist Penguin International : BTM 0% has been extended for the sixth and final time to 5.30 pm on Sep 25.

 

The offeror &ldquo does not intend to extend the offer beyond the final closing date&rdquo , the shipbuilder said in a bourse filing on Wednesday (Aug 30).

 

Aleph Tav, a consortium comprising Penguin&rsquo s executive chairman Jeffrey Hing, managing director James Tham, and a special-purpose vehicle under private equity firm Dymon Asia, is the offeror.

 

It is the consortium&rsquo s second attempt to take the shipbuilder private, following an unsuccessful bid in 2021.

 

The offer, priced at S$0.83 per share, was set to close on Thursday.

 

As at 6 pm on Wednesday, the consortium had a resultant shareholding of 88.83 per cent of Penguin &ndash still below the 90 per cent shareholding threshold required for compulsory acquisition to kick in.

 

The shareholding comprises valid acceptances of the offer, as well as shares owned, controlled or agreed to be acquired by the offeror and concert persons.

 

Wednesday&rsquo s extension comes after five prior ones &ndash starting from the initial deadline of Jun 22 to Jul 6, then to Jul 20 and later Aug 3, followed by Aug 17 and subsequently Aug 31.

 

As the offeror has not amassed control of more than 90 per cent of the total number of shares, it will not be able to compulsorily acquire all the shares from shareholders. 

THE offer to take Penguin International private closed on Monday (Aug 14), with valid acceptances amounting to 191,924,607 shares, or approximately 87.17 per cent of the total number of shares in the company.

 

This includes an 82 per cent shareholding represented by persons acting in concert with the offeror &ndash Aleph Tav, a consortium comprising Penguin&rsquo s executive chairman Jeffrey Hing, managing director James Tham, and a special-purpose vehicle under private equity firm Dymon Asia.

 

The offeror also said it will be acquiring an additional 3,596,600 shares, or 1.63 per cent of the total number of shares after 6 pm on Monday &ndash bringing the total number of shares owned, controlled or agreed to be acquired by the offeror, as well as valid acceptances, to 88.8 per cent.

 

Prior to this, Penguin International had extended the closing date for the privatisation offer four times, with the latest closing date falling on Aug 17. Its last announcement stated that the offeror and persons acting in concert had garnered 88.68 per cent of the total number of shares in the company.

 

As the offeror has not amassed control of more than 90 per cent of the total number of shares, it will not be able to compulsorily acquire all the shares from shareholders.

 

Penguin International BTM 0.63% has upped its offer price to 83 cents per share, up from its initial offer of 82 cents. The new offer price is said to be &ldquo final&rdquo although it may be revised &ldquo in a competitive situation&rdquo , says the statement put out by Penguin on May 15.

 

The revised offer also includes the company&rsquo s dividend payout for FY2022, which was approved by shareholders at its annual general meeting (AGM) on April 27. This means that a shareholder who was registered as at the record date of May 10, will receive both the FY2022 dividend and the final offer price. On the other hand, shareholders who were not registered by the record date and validly accepts the offer, will only receive the final offer price.

 

The original offer price was previously determined on the basis that the shares will be acquired with the right to receive any distribution that may be declared, paid or made by the company on or after the offer announcement date. This includes the first and final dividend of 2.25 cents per share for the FY2022 ended Dec 31, 2022.

 

The final offer price represents an increase of 3.25 cents or 4.08% over the initial offer price after adjusting for Penguin&rsquo s FY2022 dividend of 79.75 cents per offer share.

 

The final offer price also exceeds the highest closing price of the shares in the 15-year period prior to the offer announcement.

SHIPBUILDER Penguin International : BTM 0% wants to tap the decarbonisation trend with electric vessels as well as vehicles for the booming offshore wind industry &ndash even if it means stomaching lower margins for now.

 

&ldquo Sometimes the price to pay for sustainability is lower profitability,&rdquo the company&rsquo s managing director James Tham told The Business Times.

 

Under his leadership and that of executive chairman Jeffrey Hing, Penguin has spent the last decade diversifying its portfolio and geographical reach.

 

Back in 2012, it was selling high-speed aluminium crew boats and security boats in South-east Asia and West Africa. Its bestseller was an armoured security boat dubbed the Flex Fighter, much-used in Nigeria for anti-piracy operations.

 

&ldquo We were essentially a one-product, one-market company. We made good margins, but this wasn&rsquo t sustainable,&rdquo said Tham.

 

Since 2020, however, Penguin has been busy building its own stock of offshore wind farm crew transfer vessels (CTVs), as well as other green vessels. The group also introduced a ferry design in 2018.

 

In mid-2020, it delivered Singapore&rsquo s first hybrid-electric seagoing ship to Shell. This was followed by a 34-metre hybrid-electric patrol boat for the Maritime and Port Authority of Singapore (MPA) in April 2022.

 

It is building three pure-electric ferries and rapid shore-chargers to support Shell&rsquo s energy and chemicals park on Pulau Bukom. Dubbed the Electric Dream project, these will be Singapore&rsquo s first fully-electric seagoing ships.

 

Penguin has also ventured into new markets, including other parts of West Africa, the Middle East and Europe. Last year was the first year Europe surpassed Africa as Penguin&rsquo s largest market in terms of shipbuilding, repair and maintenance revenue. It contributed 41.5 per cent of this revenue, followed by Africa at 23.6 per cent.

 

Going green, earning less

Diversification means having to accept lower margins, said Tham.

 

Penguin posted a modest 1.9 per cent increase in total revenue to S$135.2 million in FY2022, from S$132.6 million the year before. Gross profit margins fell to 26.6 per cent from 28 per cent, weighed down by lower shipbuilding income. Net profit was S$10.6 million, down 4.1 per cent from S$12.7 million the year before.

 

The group used to command margins of over 30 per cent in &ldquo the good old days&rdquo between 2012 and 2014, he noted.

 

&ldquo You&rsquo re having to change the whole industry&rsquo s mindset. For ships that are not conventionally powered, there&rsquo s always going to be a premium but there are not many charterers out there who will willingly pay for decarbonisation activity,&rdquo he said.

 

Premiums are currently lower than what Tham believes are reasonable, given the extra effort and risk Penguin takes on to integrate new equipment and systems into existing vessel designs.

 

&ldquo That&rsquo s one reason our margins are being squeezed&hellip There are a bit of loss-leaders in the market,&rdquo he said.

 

As part of its diversification efforts, Penguin has also taken on more build-to-order projects than build-to-stock ones. Build-to-order vessels command half the margins of build-to-stock ones.

 

The group&rsquo s shipbuilding and chartering activities in the traditional offshore oil and gas sector still form a core revenue stream, especially to make up for the shortfall in its green initiatives.

 

&ldquo Oil and gas may seem like a dirty word but often the dirty word is what keeps us going, keeps the lights on,&rdquo he said.

 

Tham is, however, hoping for higher margins in time to come: &ldquo Once Penguin is well-known (for its products), once the market accepts that there&rsquo s going to be cost escalation, we hope we will be rewarded,&rdquo he said.

 

Environmental regulations are also putting more pressure on shipowners to go green: In March, MPA announced that all new harbour craft must operate on low-carbon energy solutions by 2030.

 

Less cash, more debt, lower margins

Penguin&rsquo s capital structure is not what it was. Gone are its days as a company &ldquo fondly&rdquo remembered by some shareholders as one with &ldquo a lot of cash and zero debt&rdquo , Tham said.

 

But he makes no apologies: &ldquo In order to diversify, to grow, we had to utilise more cash. We had to take on more debt. There are no two ways about it.&rdquo

 

He has no intention of propping up Penguin&rsquo s low trading volumes, which have plunged further after an unsuccessful privatisation bid two years ago. The monthly average of the group&rsquo s cumulative trading volume in the last three months was 180,000.

 

In January 2021, a consortium comprising Tham, Hing and a Dymon Asia fund teamed up to make an offer for all the remaining shares it did not own in Penguin. It ended up with a collective stake of over 80 per cent, falling short of the over-90 per cent needed to take the group private.

 

Tham declined to say whether there might be another privatisation bid.

 

Shares of Penguin closed at S$0.70 on Mar 24 (Friday). This gives the counter a market capitalisation of S$170.2 million, with a price-to-earnings ratio of 14.6 and a price-to-book ratio of 0.8.

 

Rather than improve trading liquidity, his priority is to grow the business through organic growth.

 

Penguin&rsquo s last acquisition was in 2004, when it bought bunkering company Soon Tian Oon. But the company &ldquo didn&rsquo t turn out to be a good investment&rdquo , and so it was wound down in 2013.

 

In Tham&rsquo s view, taking on acquisitions is &ldquo instant gratification&rdquo : &ldquo I don&rsquo t think we&rsquo d be short of people who would help fund our growth through M& A. But we don&rsquo t believe in that&hellip We go slow and steady.&rdquo

 

The group has received proposals from companies looking for buyers, but these came with inflated valuations that &ldquo do not take into account huge liabilities and challenges&rdquo .

 

&ldquo Many of these companies are heavily indebted even those that do not have legacy problems. Debt is needed to fuel growth, but over-reliance on debt could eventually kill a company,&rdquo he said.

 

To raise funds for future investments, Penguin plans to take on more borrowings.

 

The group&rsquo s cash and cash equivalents stood at S$12.5 million as at Dec 31, 2022, down from S$19 million at end-2021. Total bank borrowings rose 56.8 per cent year on year to S$23.9 million, of which S$15.9 million was long-term debt.

 

Yet, Tham considers the group &ldquo fairly conservative&rdquo relative to its peers: &ldquo We are taking on more debt, but we take on debt selectively. And we&rsquo re still conserving cash as much as we can.&rdquo

 

Penguin has also been fortunate to secure financing for its vessels and shipbuilding facilities, especially at a time when shipowners are struggling to do so for the offshore oil and gas segment amid credit tightening by banks. The group currently has shipyards in Singapore and Batam.

 

Having Dymon Asia on board as a shareholder has helped in this area. &ldquo Dymon played a part in us defining the Electric Dream project with Shell better, and also in securing green financing with DBS,&rdquo he said. &ldquo Their investment in the group is a big vote of confidence.&rdquo

 

Besides Europe, Penguin is eyeing Taiwan, Japan and South Korea as other growth markets for offshore wind. In March, the group marked its first Japanese transaction with the sale of a CTV to Japanese shipper NYK Line.

 

Strict cabotage laws in these markets, however, could pose a challenge to the group&rsquo s expansion, Tham noted. Cabotage rights are necessary for a transport company to trade outside its home country.

 

&ldquo At this stage, we just have to continue to be competitive,&rdquo he said. &ldquo When the day comes, we may be forced to consider investing in a shipyard in that country. It&rsquo s something that we just need to be mentally prepared for.&rdquo