Logindo Samudramakmur

On yesterday, Monday February 23, 2015, Jakarta Composite Index (JCI) closed at 5,403, which is recorded as the highest position in history so far. In friendly market conditions like these days, most of the stocks on the Stock Exchange are keep breaking their highest price records. However, some stocks has a different story in which they are not rising but falling instead. And one of them is Logindo Samudramakmur (LEAD), which is currently traded at Rp1,845 per share, or waaayy below its peak position ie 5,325. In contrast to some other stocks that fell either because lack of fundamentals, or because the company’s financial performance has decreased, or because of certain negative sentiments, then LEAD seems to have no problems. Is this an opportunity?

LEAD is one of the shipping companies in Indonesia which can be considered as new, as it was established and began operations in 1997, when the company obtained a ship lease contract from Total E&P Indonesie, one of the foreign oil companies operating in Indonesia, precisely in the Mahakam block, East Kalimantan. After that, the company continues to grow until they owned and operated 25 vessels in 2005, all of which are types of vessels to support offshore oil mining activities. At the end of 2013, Logindo already owned 59 vessels, and in the same year the company decided to go public, at the IPO price of Rp2,800 per share.

Then, whether it's due to a positive sentiment related to 'marine toll road' in the shipping sector or because of other factors, the stock of LEAD continued to rise until reached 5,000 in September 2014. However, even at the price of Rp5,000 per share, with PER and PBV of 12.1 and 2.2 times respectively, LEAD’ valuations were not yet too high. However, entering the month of October 2014, without preceded by certain negative sentiment or disappointing financial report, LEAD starts to move down, and continue to falling down to the present positions. Technically, the stock is still not showing signs of a rebound, but in valuation, with a PER of only 4.5 times, then LEAD began to attract the attention of bargain hunters, including myself. The question, okay, at a first glance the stock prices may seem low (I may need to emphasize the word 'at a glance' here, because bear in mind that LEAD just held its IPO not long time ago, so that we cannot obtain information about the track record of valuations of the stock in the past). But what about its fundamentals? Well, here are some points that you should consider about the company if you are interested to invest in the stock.

First, when it was said that the decline of LEAD is without a negative sentiment, then the statement may not be entirely correct. LEAD, as already mentioned above, is a shipping company specialized in transportation of oil, in this case crude oil, while the price of crude oil itself has fallen dramatically in the last six months, from US$ 90’s to only US$ 50.3 per barrel today. Under such circumstances, it is natural that there is a concern that the customers will find it difficult to make payments, and it in turn will lower the company’s profits. Like the majority of other middle-class shipping companies, LEAD’ revenues are highly dependent on one or two customers only, in this case the Total E&P Indonesie and Pertamina Hulu Energi, which contributed a total of more than 80% of company’s revenue. So if one or both companies are delaying payment or ask for a discount price because of the falling oil prices, it would be difficult for LEAD to reject the proposal because they do not have any other customer. Throughout 2014, LEAD regularly participated in the tender for the lease of vessels for other oil companies, but so far these efforts have not produced any significant results.

Second, despite the excellent operational track record since the company was established in 1997, Logindo, however, in order to achieve the target to change its status from a small shipping company into a large one, has been doing some 'risky leaps' in recent years. One of the leap is when the company hold a strategic partnership with Pacific Radiance (PR), a Singapore-based shipping company, where PR put a 50% stake in the company (became 35% after the IPO), and consequently the PR chairman, Pang Yoke Min, become the company's president commissioner. This strategic partnership gave opportunities for LEAD to become larger and able to penetrate the international market, and vice versa, gave the opportunity for PR to get into the vessel rental market in Indonesia.

However, after this cooperation, there is no clarity about who is the ultimate shareholder of LEAD, because the whole share portion of the three siblings of founder of the company, namely Eddy Kurniawan Logam, Rudy Kurniawan Logam and Merna Logam, is precisely the same to the portion of shares held by PR. Based on experience, when a company controlled equally by the two different parties, there will be a great the risk of conflict where one party wants the company to move here, while the other party wants the company to move there. And if so, the company will find it difficult to moving forward. The story would only be different if one of PR or Logam Family became the company’s majority shareholder, in which this majority shareholder will be the final decision maker of every business plan of the company.

In this case I think that Eddy Kurniawan et al might actually want that they remain the majority shareholder in LEAD, but unfortunately they are too weak in the front of Pacific Radiance to be able to remain the sole controller of the company.

Third, since 2008 (or earlier) until now, the company is fairly bold in taking large amounts of bank loans, which now is worth more than US$ 120 million. And this is another 'risky leap' of the company. I said risky, because from the recent financial statements of the company per third quarter of 2014, the company’s short-term liabilities stood at US$ 41 million, while its current assets only US$ 29 million. This means that LEAD had a liquidity problem, where if the company somehow can not pay its short-term debt, then they will be forced to sell its long-term assets, in this case the ships, at a price lower than it should be! Or even may be much lower. This has been happened on the two shipping giants, ie Berlian Laju Tanker (BLTA) and Arpeni Pratama Ocean Line (APOL), which failed to pay their debts and forced to liquidate their long term assets at low prices. Actually, when LEAD held its IPO a year ago, the majority of its IPO proceeds is used to repay bank debts.

Related to this liquidity problem, LEAD just successfully issued bonds worth US$ 37 million in Singapore with interest rates that are much lower than bank debt (probably thanks to their connections with Pacific Radiance). At first I think that the bond proceeds will be used to repay bank loans that maturing in the near future, but it was not, but to buy new vessels, because the company plans to add 4 – 5 new vessels each year. Well, maybe the management has its own view on this matter, but for us as investors, then this is one of the other 'risky leaps'.

Finally, the fourth. In addition to bank debt, LEAD also had debts from two creditors, namely SACLP Investment and the ASEAN China Investment Fund (ACIF), worth US$ 11 and 5 million respectively. Interestingly, the debts were in the form of convertible loans that can be converted into shares of LEAD, ie when LEAD successfully held an IPO on the Indonesia Stock Exchange. And it turns out that both SACLP and ACIF indeed converted their debts into shares of the company. When LEAD held an IPO on December 11, 2013, both companies are converting their debts based on the IPO price of Rp2,800 per share, so SACLP holds 45.3 million shares of Logindo, while ACIF holds 20.6 million shares.

And as of September 30, 2014, the two companies each hold only 35.3 and 14.6 million shares of LEAD, which means that between December 2013 and September 2014, both SACLP and ACIF has released some of their shares to the public. However, on September 30, 2014, the stock was in one of the highest positions, ie 5,100. Got the point? So when LEAD continues to rise within a few months after its IPO, it was because the two big boys are distributing their shares in the upper price! So that they would have benefited from short-term trading.

And when LEAD dropped to the present position, then the two companies are starting to accumulate their shares back. Based on the data of shareholders registration of the company, the number of LEAD shares held by SACLP and ACIF has risen from the total 54.6 million shares at the end of November 2014, into 57.9 million shares at the end of January 2015. If you look at the stock trend that still depressed until now, it is possible that the two companies are still in the stage of accumulation, which of course they prefer to accumulate the shares in the lower prices.

So in conclusion, you could say that LEAD is a penny stock that is being ‘cooking down’, because the price movements are controlled by certain parties and not by the market mechanism, and it may as well explains why the stock is easily fell to as low as its current position almost without any resistance at all. So in this case, even if you assume that LEAD’ price is low enough and the fundamentals are good also, but the stock will not go up if the price is deliberately detained at lower levels. And I, frankly, do not like this kind of stock.

When this article was written, LEAD still has not released its financial statements for the fourth quarter of 2014. However, based on the financial statements of third quarter, the company still recorded a good growth where the revenues and profits rose 27.7 and 53.0% respectively. With a 18.0% of return, the PBV of 0.8 times only for LEAD looks very interesting. However, after further analysis, it is quite clear that the good fundamentals and low valuations for the stock may not mean anything. If you dare to take risks of being 'bullied' by the stock-makers, including the risk that LEAD’ financial performance in the future may be down a little because of the drop in oil prices, then you can join to accumulate LEAD, because no matter how low the price can go, bu it will eventually go up. But from the point of view of value investing, well, we do not want to take such a risk, except perhaps if the price is really low, let say, 1,500.