Swee Joo In Deep Water

Blogged several times before:

1. Feb 2010: More Losses Recorded By Swee Joo!
2. Dec 2009: Review of Swee Joo's Earnings
3. Aug 2009: Featured Report: KN on Swee Joo **
4. Aug 2009: A Quick Look At Swee Joo's Earnings
5. Jul 2009: iCapital And Swee Joo
6. Feb 2009:Update On Swee Joo's Earnings
7. Nov 2008: Shipper Swee Joo Announces Losses

Today, Swee Joo's problems is highlighted on the Edge Financial Daily.

Swee Joo in deep water over low cash reserves, vessel charter

Swee Joo in deep water over low cash reserves, vessel charter
Written by Melody Song
Thursday, 12 August 2010 11:46

KUALA LUMPUR: After embarking on its fleet expansion strategy for the financial year ended Sept 30, 2009, Swee Joo Bhd is now in deeper water than expected as it is unable to lease out its newly-acquired ships due to soft market conditions, according to sources.

The loss-making shipping services company took delivery of 10 new vessels in FY09, according to its latest annual report, which it said was to “give (its) fleet a wide variety of ships and the flexibility to cater to the diverse needs and expectations of customers through the right mix of vessels for the right routes”.

It now has 13 tugboats, 10 container vessels with a total capacity of 4,972 twenty-foot equivalent units (TEUs), seven barges with a total capacity of over 1,000 TEUs, four chemical tankers with a total volume capacity of 38,000 tonnes and five dual-purpose vessels.

However, an industry observer pointed out that the acquisitions have left Swee Joo with very weak cash reserves.

For the second quarter ended March 31, 2010 (2QFY10), the Sarawak-based company held cash and bank balances of RM5.59 million, while its total borrowings stood at RM471.13 million. Its net gearing ratio presently stands at three times.

In that quarter, the company posted a net loss of RM23.11 million, or 11.56 sen per share, compared to a net profit of RM5.08 million a year earlier. Cumulative net losses for 1HFY10 were RM32.25 million, or 16.13 sen per share. Net assets per share at end-March 2010 stood at 78 sen.

According to Swee Joo’s 2009 annual report, 93% of its total revenue of RM340.24 million, or RM316.2 million, came from its shipping and shipping-related services business, RM13.6 million or 4% from its transportation and haulage business, while the remaining 3% was from its container repair and related services.

Its network coverage encompasses Southeast Asia, as well as growth areas such as China and India, in addition to Papua New Guinea and the Solomon Islands.

Being a Sarawak-play stock, Swee Joo could be poised to enjoy some of the upswing in business following developments in the state, especially pertaining to the Sarawak Corridor of Renewable Energy (Score) which should see a number of upcoming infrastructure and construction projects.
However, the lack of investor interest in shipping stocks — even for Sarawak-based plays — is apparent given the weak stock price performance of Shin Yang Shipping Corp Bhd, which made its debut on the Main Market of Bursa Malaysia on June 23.

Shin Yang has not done particularly well since its listing, with its shares closing at RM1.11 yesterday, below its IPO price of RM1.28.

In its note on Shin Yang’s initial public offering (IPO), Kenanga Research said that it did not expect a spike in demand in the shipping sector in the near term although it had a fair value of RM1.50 on the stock.

In its regional shipping monitor for the week ended July 30, 2010, CIMB Research said overall, container shipping freight rates had held up “relatively well over the past few weeks”, noting the 20%-25% capacity increases since January had been matched with rising demand.

The research house was overweight on containers but maintained its neutral call on dry bulk and tanker shipping.

“We are less positive on the bulk sector in 3Q as the Baltic Dry Index (BDI) is likely to be weak given that steel prices are falling just as higher iron ore contract prices kick in,” it said, adding that the situation had put pressure on steel mills globally to cut production and reduce iron ore imports.

“Meanwhile, the measures adopted by the Chinese government from mid-April to cool property speculation have succeeded in curtailing transactions, anecdotally causing a slowdown in the pace of some construction activity. European steel mills will also probably be more cautious in production start-ups, leading to a slower Atlantic market for iron ore.”

The BDI, a key measure of commodity shipping costs, is currently at 2,030 points. The index has tumbled 52% since reaching a year high of 4,209 points on May 26, as China’s attempts to curb property speculation dampened demand for iron ore.

The BDI has displayed high levels of volatility, reacting to various factors such as commodity prices, shipping capacity additions, inventory re-stocking and de-stocking activities, and China’s growth prospects, among others.

The index reached an all-time high just before the global financial crisis in May 2008, when it touched just below 11,800 points. After the global financial crisis, the index fell as much as 94% to a low of 663 points in November 2009.

The uncertain market conditions have raised further questions as to how Swee Joo, which had positioned itself to ride on the shipping boom in the years before the global financial crisis, would reduce its gearing as well as pare down its borrowings.

To pare some of its debts and rationalise non-core assets, Swee Joo announced the sale in June of a piece of industrial land in Port Klang for RM5.95 million cash, which would yield a gain of RM187,000.

A few months ago, Swee Joo saw the exit of its substantial shareholder Goodlink Sdn Bhd, which disposed of all its 10.11 million shares held through a married deal transaction. Following this, Goodlink ceased to be a substantial shareholder as at May 27.

Meanwhile, two of Swee Joo’s board members and another individual acquired a total of 6.57 million shares pursuant to a married deal while Sim Swee Joo Shipping Sdn Bhd acquired 3.03 million shares.

The company’s single largest shareholder now is its executive director Lo Ping Yiu, with a 13.1% stake as at July 22, 2010. Swee Joo saw its shares hit their 52-week low on July 28 at 40 sen, while its one-year high was at June 12, 2009 at 81 sen.

The stock closed flat at 40 sen yesterday.


This article appeared in The Edge Financial Daily, August 12, 2010.