Berlian Laju Tanker, part 2

Yesterday, management of Berlian Laju Tanker (BLTA) announced the result of right issue. And as we have discussed in previous article, the right issue indeed wasn’t absorbed by the market entirely, but only about 74% (of Rp1.2 trillion), and the rest of it was bought by the standby buyer (link). According to the management’ opinion, the 74% was consistent with the initial target, so there’s nothing to worry about.

If we trace again the story of this right issue from the beginning, then probably you would question two things: 1. Why didn’t BLTA issued new debts like bonds or such? And 2. Why did the right issue was only Rp220 per share? The price was considered very low, even if compared with BLTA’s today price that had been corrected pretty deep in the last month.

We knew that Berau Coal (BRAU) also had a mountain of debt. Yet they still effortlessly capable to get new debt amounted to US$750 million for refinancing. If the management of BRAU released more than 7 million pieces of shares to the public when IPO, then most likely the shares will still be depleted by the market. In short, although both companies have great debts, but BRAU seems to be easier to look for funding source than BLTA.

We certainly know that BRAU and BLTA are two different companies. The basic difference between the two is: These two companies engaged in two sectors where the condition at present is conflicting. BRAU engages in the coal sector, which until now prospects are still good (or at least it seems so), while BLTA engages in the shipping sector that the prospect is deteriorated lately. Hmm how do you know? If we can pay attention to the coal sector from the commodity’ price movement, production volume, demand volume, and its export-import data, then if you want to take a notice on shipping sector, you can see that from the Baltic Dry Index movement.

Then what is Baltic Dry Index?

Baltic Dry Index (BDI) is the numbers that describe the average rental price of ships used to transport logistic, commodity, etc, including for trading between countries (export-import) in around the world. The higher the rental price, the higher the BDI number will be, and vice versa. BDI was first introduced by London Stock Exchange, and now it had been used as one of the economic indicator particularly by shipping companies.

According to the data from Bloomberg, (you can see it here), in the last three months, BDI continued to fall from its peak of 4,209 on 26 May, until it reached 1,700 on last 15 July. When this article was written, BDI was on the position on 1,964, or decline 53.3% from its peak on 26 May.

If we look further back, BDI had remained strengthen until reached its peak of 11,709 in mid 2008 before then fell drastically into position of 666 on 4 December 2008 (it means correction for about 94.3%), due to the global crisis on 2008. Unfortunately, after the correction, BDI was unable to rise back. Throughout 2009 until now, its highest position was 4,661 that were reached on November 2009.

That’s why the golden era of BLTA was also on the year 2006 and 2007 or before the global crisis, where if we see the annual report of 2009, the company recorded net income of US$107 million on 2006, and US$77 million on 2007. On 2008, BLTA’s net income started to fell drastically, which was only US$25 million. What about in 2009? They had net loss of US$117 million. On the first quarter 2010, BLTA’s performance seemed better by recording net income of US$25 million from the previous net loss of US$73 million, but the operating profit remain decline.

How can BLTA recorded net income of US$25 million yet its operating profit declining? It was because the surplus of revaluation worth of US$68 million, where on the first quarter 2009, BLTA experienced deficit revaluation amounted to US$166 million, so the gap was US$234 million. It was a pretty big gap. And what is revaluation? Revaluation is the unreal income or the loss generated from most recent assets’ value of the company.

For example, BLTA had 1 ship at the price of US$100 million (on first quarter 2009). On the first quarter 2010, let say the ship price rose to US$ 110 million, then it means that BLTA got revaluation income worth of US$10 million. Why did the income was said to be unreal? Because BLTA will only get the money of US$10 million if the ship was actually sold at the price of US$110 million.

So, the income of US$68 million was merely an income in the bookkeeping in accounting only. That’s why, sometimes it’s more important for us to pay attention to the operating profit rather than net income (only sometimes, not always). If compared to the net income, the operating profit can further illustrate an income of a company, because it is generated from the real operational activity of the company. On the first quarter 2010, BLTA income was slightly rose of 1.6% from US$159 million to US$162 million. But due to the magnitude of the increase in the cost of goods from US$109 million to US$131 million, then BLTA’s operating profit declined 42.4% from US$42 million to US$24 million.

Back to the matter of the decline in BLTA’s stock. The decline that happened since early May probably due to this problem: On 2007, by having sleek performance in 2006 and good number of BDI, BLTA took lots of debts for the broadest expansion. On late 2007, BLTA was recorded to have total liability amounted to US$1.8 billion, or increase three times than in 2006 that was only US$561 million. With that expansion, if only there was no global crisis, their performance should be better on the year after 2006.

Unfortunately, BLTA’s performance after the fiscal year of 2006 until now becomes more and more distressed, along with BDI position that hasn’t improved after the global crisis on 2008. While on the other hand, BLTA’s debts had already excessive. And the management seemed to have difficulties to find new creditors or strategic investors to refinance the debts, so they chose right issue as the last option, that too, with low price. Judging from the factors above, no wonder if BLTA’s stock continued to weakened and weakened.

You probably had just notice the decline of BLTA since last month, when the stock dropped from 330 to 240 (in average). But actually, BLTA has started to weakened long before, which was since beginning of 2008, or before the global crisis. On early January 2008, BLTA had triumphed in the position of 2,600 (in average), before then started to move down. In mid August 2008, BLTA had fell into position of 375 on December 2008. After that, BLTA had strengthened in a while into position of 930 on June 2009. But afterwards? The stocks continued to weaken until its current position.

So, when will BLTA might strengthen? If BDI strengthen, then simply we can hope that BLTA can also strengthen significantly, because therefore, there would be hope that BLTA’s income will rise in the future. Unfortunately, to predict BDI movement in the future is quite difficult because there are so many influencing factors. The renting price of the ship is of course influenced by the more or less amount of the logistic or commodity to be transported. Other factors such as import-export customs policy of a country, the price of ship fuel, weather factors, safety factors, and others, also affect the price of the rental ships. So, we haven’t know yet how roughly the position of BDI in the future, but clearly, for now, its position is considered low.

So, let’s return to the two questions above: 1. Why BLTA didn’t issue new debts such as bonds or such? It was probably because the company had difficulty in finding creditors who are willing to give a debt, because the company cannot promise a bright prospect. 2. Why did the right issue price was only Rp220 per share? Because the price was considered realistic. And it was proved even at the fairly low price though, the right issue of BLTA still not fully absorbed by investors in the market.

So, was BLTA worth to be collected? For now, not quite. But considering its liquidity lately that is very good, where its daily transaction reached hundreds of millions of shares, BLTA could be a very interesting speculation tool. Yet I’m not a speculator, so I won’t recommend this stock.

Original article was written on August 5^th, 2010.