PT Soechi Lines is a company that I myself only
heard its name recently after the company hold an IPO. However, the IPO may
be interesting because the company engaged in shipping, and we know
that the stocks in the marine sector continues to move up in
recent months, driven by positive sentiment arising from the plan and the
vision of the Government of Indonesia, under President Jokowi, to make
Indonesia as one of the 'axis of maritime' in the world. So the question of course, can we join the IPO?
The history of Soechi Lines began in 1977, where
a businessman named Paulus Utomo,
assisted by his friends and brothers, won the tender from Pertamina to provide vessels for oil transportation on the waters
around Singapore and Batam, Riau Islands province. Three years later ie in
1980, Mr. Paulus established PT Armada
Bumi Pratiwi Lines, which is engaged in vessel chartering, with Pertamina
as its main customer. The business continues to grow over the time, so Mr. Paul
founded several PT’s (outside PT Armada) which all engaged in the business of vessel
chartering.
Later in 2009, Mr. Paul decided to go to another
venture, by building a shipyard on
the island of Karimun, Riau Islands (still close to Singapore and Batam), so that
his vessel companies could build or repair their own ships and vessels. This
expansion is because the management has seen that the Government of Indonesia
began to give special attention to the shipping industry in the country, by
introducing the cabotage principle, where
all the users of marine logistics services (mostly oil companies) are required
to use Indonesian-flagged vessels only. And as local shipping companies, the
group is certainly benefited from the policy.
And in 2010, PT Soechi Lines was established to
be the holding company of the nine companies which are engaged in shipping, and
another company that engaged in shipyard, so Soechi in total has ten
subsidiaries. Once consolidated into one holding, Soechi owns and operates a
fleet of thirty three vessels of
various sizes for the transport of liquids, such as crude oil, fuel, palm oil,
liquefied gas, and liquid chemicals. The group serves the South East Asia,
India, and the Middle East. While for its shipyard, the company has one tugs
and two barges.
Although the current size of the company is
clearly much larger than when it was founded in 1980, but the majority of the
company's revenue, in this case about 60%, still comes from Pertamina only. But
it could be explained because in the locations where the company operates the
most, ie Batam and Singapore, Pertamina is the only holder of the right from
the Government to undertake export and import activities of oil. But Soechi
keeps trying to diversify its revenue by offering logistics services for
Pertamina business partners, such as Chandra Asri (a petrochemical company) and
ConocoPhillips (oil supplier for Pertamina), and the same services for oil palm
plantation companies who are headquartered in Singapore, such as Wilmar, Golden
Agri, and Asian Agri. However, since Soechi is not a big shipping company, including
for the size of local players (some giant shipping companies in Indonesia are
Berlian Laju Tanker/BLTA, Samudera Indonesa/SMDR, Humpuss/HITS, and Arpeni Pratama
Ocean Line/APOL), then the financial performance of the company is inevitably
dependent on Pertamina. But since Pertamina itself is the biggest holder of the
government mandate for exports and imports of oil, so I think it was not much
of a problem.
Then how about the future prospects of the
company, particularly in terms of development plans in the maritime sector
under Jokowi’s administrate?
In his presentation at the 2014 APEC Forum in
China, Jokowi said that Indonesia has plan to develop 24 large ports, and
hundreds of smaller ports from Aceh to Papua. Jokowi stated that the Government
of Indonesia (GoI) will build new ports and develop the existing ones, until
the archipelago, from the west end to the east, will be connected by lines of ships. This concept is called 'marine toll road'. The GoI has a
vision to build super-large ports that can serve giant ships at six locations
namely Aceh, Jakarta, Surabaya, East Nusa Tenggara, Maluku and Papua, so the
big ships from Jakarta (which transport fuel, cement, etc.) can be directly
went to Papua (through the sea line that connects the port of Jakarta and
Sorong) without the need to transit in Makassar or Moluccas.
The six major ports that are connected each
others, will be connected further to hundreds of smaller ports. So the load of
cement that has landed at Sorong, for example, can be transported further using
smaller ships to Nabire, Jayapura, and other cities on the Island of Papua. By
this way, the transportation costs of the cement will be much more efficient
(because only need to transit once at Sorong), and consequently the price of
cement in Papua will no longer be Rp1 - 1.5 million (about US$ 100 – 150) per
sack as it is today, but expected not to be too different from the actual
price, ie Rp50,000 – 70,000 (about US$ 5 – 7) per sack.
And now, as a shipping company specialized in
transporting liquid goods (crude oil, fuel, etc.), the management of Soechi saw
the opportunity from the Government’s plans. Because different with cement, for
example, which can be transported using the aircraft from Java to Papua Island,
the fuel, in large quantity, can only be transported by ship. And all this time
Pertamina itself is still experiencing difficulties in distributing the fuel,
especially to areas outside Java that is 'blocked' by the sea, because of the
lack of adequate port facilities. As you know, some of the existing ports like
Tanjung Priok, Tanjung Perak, and Belawan, their capacities are already full,
so Pertamina itself almost did not get a space.
So with the construction of new ports, including
increasing the capacity of existing ports, then it will open up space for
Pertamina to more easily distribute fuel across the country, from Aceh to
Papua, this time by large load for each delivery (Pertamina has been able to
send fuel to Papua, but only with small quantities for each delivery and must
through many distributors, which makes the fuel price became so expensive in
Papua, around Rp20,000 - 40,000 per liter). While Soechi? Just providing the
ships. Although Soechi is not a large vessel company, including not the only
shipping partner for Pertamina, but the position of the company that has 30
years of partnering with Pertamina, allows Soechi to win the future tender, if
Pertamina later need additional ships.
Seeing the opportunity, Soechi then staged an
IPO in which most of the proceeds will be used to purchase new vessels.
Actually, after the company get the proceeds (at the price of Rp600 - 800 per share,
Soechi will reap about Rp1.5 – 2 trillion), then it does not mean that the company
can immediately use the funds to increase revenue. Because even though the
process of buying a new ship only takes shorter time than setting up a factory,
for example, but currently the government is not yet started the construction
of the ports. And the construction of ports could take years. For example, the
construction of the Kalibaru Port
that is currently running, is estimated to be completed in 2.5 – 3 years from
its ground breaking on last March 22, 2014.
The point is, still, despite the shipping sector
looks very attractive after Jokowi stated his vision to build marine toll roads
(or whatever it's called), but that vision would take time to be realized, even
though the President wants to work quickly. And because the new ports are not
yet ready to operate, then Pertamina also do not need new ships yet, and that
means that Soechi can not directly obtain contracts for its brand new ships (in
contrast to Pertamina, to obtain a contract of oil from Chevron, Exxon, etc.,
then Soechi should fight tight with many competitors, including Wintermar/WINS
which is also a oil carrier specialist).
Thus, although I’m also optimistic that the
maritime sector under the new Indonesian Government will growing, but in the
end we still have to look at the track record of the performance of Soechi as a
shipping company, to assess whether its shares worth to buy or not. Because if
you only look at the prospects, then you have to remember that those prospects
will not be realized within one or two days.
And fortunately, unlike BLTA that was destroyed
by heavy debts, Soechi is relatively a healthy shipping company with DER of
only 1.2 times during the first semester 2014 (Soechi debt is still slightly
larger than its equity, but for a transport company, it's natural), and even
then the company directly intends to reduce its debt in which 25% of the
proceeds from its IPO, which means around Rp400 - 500 billion, will be used to
repay a portion of bank debts.
But in terms of profitability, well, Soechi only
making large net profit since 2013 to the present. Before that, the profits are
very small, even it was a loss in 2010. Here's more:
Year
|
2010
|
2011
|
2012
|
2013
|
2014*)
|
Equity
|
47
|
54
|
83
|
138
|
174
|
Revenue
|
25
|
65
|
71
|
106
|
55
|
Net Income
|
0
|
3
|
3
|
30
|
16
|
ROE (%)
|
0.1
|
6.3
|
3.3
|
21.8
|
17.9**)
|
*) until first half
|
|||||
**) annualized
|
Take a look, you’ll see that Soechi does not
have an impressive track record, where the company's performance only stood out
in the last two years, and even that with relatively small ROE, ie only 18 – 22%.
However this could because that in 2010 and 2012, not all the subsidiaries of
Soechi Group are consolidated into the parent company because, as already
discussed above, PT Soechi Lines itself was established in 2010. But it is clear
that from the latest balance sheet composition and performance, especially when
compared with other listed shipping companies where they usually have a
mountain of debts, with inconsistent profits, then Soechi’ fundamentals are
quite good.
And what about the shares?
As mentioned above, Soechi’s shares will be
released at a price of Rp600 - 800 per share. We take 600, then the company
will make proceeds of Rp1.5 trillion. Soechi’ equity position on June 30, 2014
was US$ 174 million, or exactly Rp2 trillion, assuming the exchange rate of US$
1 = Rp11,500. Thus, after the IPO, the equity value of the company would be
Rp3.5 trillion. Divided by 8.6 billion of outstanding shares, the book value of
the company will be Rp414 per share. Because the share price was Rp600, then
its PBV = 600 / 414 = 1.5 times.
Well, what do you think? For me, taking into account the past financial performance
of the company, while on the other hand the name of ‘Soechi’ is not a well
known brand, then this is a fair valuation although could not be said to be too
low.
However, if you believe that 'Jokowi Effect'
related to maritime sector will continue to persist until some time in the future,
then the price is obviously low. If we look at the experience of IPO of Waskita
Karya (WSKT), where the shares had successfully skyrocketted following the hike
of any other construction stocks at the time, then Soechi can also experience
the same thing.
So in conclusion, this stock is pretty decent to
buy if the price is 600 or slightly above. The bookbuilding for the stock was already
closed, so if you are interested then you could only buy it on the market, at
December 2. I do not know whether Soechi will fly or not, but by looking at the
performance of the company, the valuation of the stock, and especially the prospect
of its business, then there was almost no reason for this stock to go down.
We'll see.
PT Soechi
Lines, Tbk
Rating of Performance on First Half 2014: A
Rating of Stock at 600: AA
Any inquiries about investment in Indonesia Stock Market? Please send an email to teguh@averepartners.com.
Any inquiries about investment in Indonesia Stock Market? Please send an email to teguh@averepartners.com.
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