Vessel deliveries also to reach its peak.
According to Maybank Kim Eng, Singamas Container's management expects the downturn in global trade from end-2011 will reach a turning point in 2H, implying a pickup in dry freight container demand.
Maybank also noted that the dry freight outlook should also benefit from scheduled vessel deliveries reaching a peak in 2013 and accumulated demand from delayed replacement of aging containers. The ASPs of dry freight containers are expected to rise gradually as higher major raw material costs (Corten steel and floorboards) are passed on.
Two new Qidong production plants. SC’s 2 plants in Qidong with total joint capacity of 230,000 TEUs (21% of FY13F capacity) have been fully operational since July 2012.
Management expects these new plants will replace its existing 3 factories in Shanghai with total capacity of 220,000 TEUs which had commenced operations from 1990 to 2003.
SC streamlined its operations and made 1 acquisition (fully consolidating Xiamen Pacific, 70k TEU p.a.) and 1 disposal (100% stake in Shunde Singamas Tank, which produced 10,000 Tank Containers p.a.) in FY12A.
Raw materials = 86% of total costs. SC’s major cost components are raw material (86.4% of COGS), factory overhead and direct labour (8.6% and 5.0% respectively).
Corten steel, a specialty hot-rolled steel, accounted for 62.8% of the material costs. The steel price has been stable over the last 4 years and
ranges between USD671 and USD773 per mt. Floorboards accounted for 13% of raw material costs while supplementary and paint took up another 12.7%/11.5%.
The prices of all latter three components were generally stable over the last few years.
Cautious outlook on global trade and container demand. We believe a refocus on market share by SC’s major competitor CIMC (2039 HK, est. market share of 50%) will put pressure on dry freight container ASPs.
As we believe global trade recovery in 2H13F will be slower than expected, we expect container demand will remain flat over the next 2 quarters. SC is trading at 7.6/5.7x FY13/14F consensus earnings, with a forward yield of 5.0/5.9%. Over the last 5 years, the counter traded between 1.6-24.0x forward PE with an average of 8.2x.
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