STI falls below 2800 this week. The year started with the months of Jan and Feb seeing major indices in the world tumbling. The story almost reversed in Mar when the markets rally coming back with a vengeance. Could it be the same story of up and down for the rest of the year? Or could a major good or bad news result in a more permanent up or downtrend? It is anybody’s guess for now.
Anyway, this week, I took a huge gamble to load up Swissco at 0.182 – literally an Oil and Gas dependent stock! Hooo….. Risky! Playing with fire! Not sure I wanna do that!” Likewise, I am quite bearish in the O&G industry at least until next 1-2 years. Read my earlier articles:
Short term trading. Speculation. Perhaps the belief that Swissco shares had overdone its selling. The thrill of taking some calculative risk!
The market in the short term does not care about fundamentals!
Anyway, I had followed Swissco stock for 6 years now, buying and selling its shares several times. As for knowing the company in work, it has been more than a decade.
About Swissco stock
Not so relevant for short term trading, but just for readers’ information for more about Swissco as follows. Do remember that I consider myself an oil and gas blogger who is passionate about the industry despite the oil price is almost crushing it up!
Over the years Swissco business has totally transformed from a small tug boats and barges operators to a OSV and rig operators. The owners of the company also changed hands several times.
As of today, Swissco is backed by Tan Kim Seng and family who were already in business since 1974. Tan is an oil and gas tycoon where he profited from the sale of KS Energy which he founded, to Indonesian tycoon Kris Wiluan. You can read more about Tan Kim Seng here. He is currently the co-founder of Tembusu partners and via Kim Seng Holdings “KSH”, he also has stakes in Heeton Holdings and is director/shareholder of Viva industrial Trust. The one running Swissco is his brother Tan Fu Gih.
Of late, for its FY15 results, Swissco announced a profit of US$31.2 mil. FY14 profit was US$15.9 mil. So why the sharp decline in share price when profit almost doubled within a year?
This is due to the latest 4Q15 results, where Swissco announced impairments of US$17 mil on vessels and rigs which resulted in a net loss of US$15 mil based on revenue of US$21.7 mil. Many of the rigs owned by Swissco or co-owned (JV bet. Swissco-Ezion) are either already off-hire or expected to be off-hire in year 2017. The story is not so different in the OSV segment. Hence the battered share price!
Another downside is the net gearing of Swissco is currently at a high of close to 80%. Note that Swissco on Sep 2014, issued S$100 mil notes at 5.70% due in Apr 2018. This means that cash flow is going to be very tight going forward and if the oil situation does not recover in the next two years, the company will likely see troubles ahead.
On the flip side, recently CIMB has recently issue a report that even if 6 of the 9 rigs Swissco operates were to be scrapped and impaired at US$170 mil, the current price is also over-bearish. Refer here. Disclaimer: I am not a believer of Analyst report! That said, there are some valuable info/facts and figures that we can use for reference.
Always keep an open mind, and do not give yourself unnecessary restrictions, such as always lamenting that all analyst reports are losers…I not going to read it…it is useless totally…And then only be over-conceited that how good you are even when you have not even starting to show any results or have not earn any money yet, or still using mummy/daddy money to build a portfolio to earn money. Be a clever guy/gal who is able to extract the valuables in what others may thought it is junk. End of the day, be humble when you are not there yet. Even when you are there, be humble also. Keep learning! :-)
The main difference of Swissco compared to Keppel O&M and Sembcorp Marine is that the former is shipowner while the latter two are shipbuilder in its core. Shipowner being higher in the value chain is more elastic to oil price compared to shipbuilders which may otherwise still have many unfinished/untaken ships in its yards even when the oil price rises.
Most of the Swissco rigs that are off-hire are for PEMEX. PEMEX recently had a new CEO, but I do not believe he is a magician and can orchestrate a quick turnaround. On the other hand, there still exists demand of shallow water offshore vessels in Middle East, India and potentially Iran. Swissco’s hope is to penetrate these markets.
Swissco also owned a young fleet and these vessels are normally built at a conservative pricing. The rigs owned are also second-hand making them much cheaper than the newbuilt ones. Although the rigs are second-hand, but they are well upgraded and well maintained operated by reputable and experienced operators of Ensco and GSP. Not all rigs are for drilling also and some are for offshore accommodation purposes. Overall, the aforementioned reasons do put them in a better chance comparatively in getting contracts in this very tough market with low pricing. I am not saying they “will” get contracts, and please do not quote me! Swissco also co-owned several rigs with Ezion.
This week, Swissco also announced an MOU to acquired India based VM Marine, a ship owner and management company. Nothing is definitive and firm yet and no mentioned how the acquisition is funded, but seems like something is brewing?
Could it be good news of penetration into India market or other reasons…with further burden of rights issues or further issuance of shares? We shall see!
At price of S$0.182, PB is 0.35x. Ok, price has risen to 0.185 as of last trading day.
Keppel DC Reit
I also added Keppel DC Reit with the belief that the future world will be more extensively data-connected and requires more Data centres. This one is more “long term”!
The shares added are going into my SRS. This purchase is funded when I offload my stakes in Starhub and M1 and betting more on Data over Telco at least over the next few years. Or some sort of rebalancing, if you like to call.
At current price of 1.05, Keppel DC Reit has a PB of 1.14, seeing a yield of 6.5% with an aggregate leverage of 29.2% as of end 2015.
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