In the first quarter of
2015, Trada Maritime posted a net profit (attributable to the shareholders of parent
entity) of US$ 0.4 million. Although the figure has risen significantly over
the same period of the previous year, but it is very small compared to the
value of the company's equity of US$ 86.7 million. However, an interesting
story about this TRAM probably not related to its financial performance, but
rather related to its share price that currently slumped at the level of Rp50’s
per share, or extremely low compared to its peak price (in the last one year)
which was Rp1,900 per share. If you read the company’s financial statements
that, although don’t show good fundamentals but also not that bad (the company
still posted a profit, and the equity was still positive), and its PBV at
current prices is only 0.5 times, then as a bargain hunter, you may ask: Is
there an opportunity here?
TRAM is one of many
companies of shipping and marine transportation service in Indonesia. The company
was founded in 1998 and began its commercial operation in 2000, by leasing a
floating storage and offloading (FSO) vessel to an oil company. In 2003, the
company bought a tanker to transport liquid cargo. In 2008 the company again
increased its fleet with some boats and barges for transport dry cargo such as
coal etc. Also in 2008, the company went public on the Indonesia Stock
Exchange. At the end of 2014, TRAM operates a total of twenty vessels
comprising of five FSO vessels, five support vessels for the FSO, three tankers
for liquid cargo, five bulk carrier, one passenger ship, and one liquid natural
gas (LNG) carrier vessel. Currently TRAM has several long-term customers who
are mostly oil and gas, and coal companies.
After reading the
above, you may not see anything special from this TRAM. But here’s the story:
TRAM has been hit by at least two extraordinary events that disrupt the company's
operations, which ultimately led to a decline in its financial performance in
the last few years. Here they are:
1. Fire accident of
'Lentera Bangsa' vessel
In June and July 2010,
TRAM obtained a loan from the International Finance Corporation (IFC) and the
Bank of Tokyo - Mitsubishi UFJ for total of US$ 50 million, to finance the
modification of the FSO vessel 'Lentera Bangsa' which belonged to the company.
The company would later pay the debt by way of installments every three months.
But in September 2011, the vessel was caught on fire, so that it stop operating.
As a result since September 2011, the company failed to meet its obligations to
pay its debt to the IFC and Bank of Tokyo.
Prior to the fire, the
vessel had been insured to PT Asuransi Dayin Mitra, Tbk (ASDM) and PT Asuransi
Purna Artanugraha, with the value of coverage of maximum US$ 75 million.
However, since the event of fire until today, the coverage have not been paid
by the insurance company. The problems became complicated after the IFC and
Bank of Tokyo, in May 2014, sent a warning letter to TRAM to immediately pay
its debts, but the management of TRAM managed to convince the creditors that
the problem lies at the unpaid insurance claim. Until now, TRAM together with
IFC and Bank of Tokyo are still in a position of waiting for the insurance
companies to resolve the claim as soon as possible. Management of TRAM has filed
the claim at June 2014.
2. The case of oil
smuggling, which involves 'Jelita Bangsa' vessel
On June 2014, the
'Jelita Bangsa' FSO vessel belonged to TRAM was detained by customs officers in
the waters of the Riau Islands, for (allegedly) moving the cargo of crude oil
to another ship illegally. As a result of this case, the vessel stop operating.
The authorities
immediately investigate the case. And the results, based on the companys’
financial statements for the first quarter 2015, the captain and two crew
members of the vessel became suspects, but TRAM as the owner of the vessel was
free of charges because the three suspects acted beyond the authority given by
the company. However, until today the vessel Jelita Bangsa is still detained by
the authorities as evidence.
Okay, if you read the
above paragraph thoroughly, you would find some questionable things about the
two events. The first, Lentera Bangsa was caught on fire on September 2011, or
nearly four years ago, and since that time the company stopped paying debt to IFC
and Bank of Tokyo. Then why the management of TRAM did not immediately submit a
claim to the insurers? Why do they have to wait until June 2014 to submit the
claim? (and even that’s because the company received a warning letter from IFC
in May 2014, a month earlier). If management of TRAM had filed a claim to the
insurance companies in September 2011, ie immediately after the fire, then the
claim must’ve been paid at the moment. But because TRAM submit the claim on
June 2014, then at the moment the insurers are still examining the claim,
because a sum of US$ 75 million is certainly not a small amount to be paid
right away.
Anyway, because TRAM
still have not received a payment of claim from the insurers, then in its
financial statements since 2012, TRAM posted non-operating losses due to the
estimated impairment of assets ('asset' here is the Lentera Bangsa vessel), of
US$ 12 million in 2012, and US$ 23 million in 2014, so the total is US$ 35
million. Coupled with the costs related to ‘disputes’ with IFC and Bank of
Tokyo, the company posted losses over the last three years, so that TRAM’ net
equity value shrinks from US$ 152 million at the end of 2011, to only US$ 86
million in the first quarter of 2015 (were the management deliberately let it
happens?).
So now it seems clear
that when the claim is eventually paid, net equity of TRAM would increase, and
the valuation of its stock that already low at the moment (the PBV was only 0.5
times at the price of Rp55 per share) would be much lower. Yet once again the
question, why the management of TRAM had not had filed a claim to the insurers
until June 2014, or nearly three years after the events of the fire?
The second, related to the
case of oil smuggling involving the vessel Jelita Bangsa. When the management
stated that the company was not involved in the case, then why the authorities
still detain the vessel? In the public expose held by the company to explain
the problem, the management did not mention any particular effort to
immediately release the vessel Jelita Bangsa so that the ship could be back in
its commercial operation, but they would only wait for the law process. The
management only emphasizes the point that, although the ship isn’t in operation,
but its contribution to the company's overall revenue is only about 5%, aka not
too large. However, the fact is in the first quarter of 2015, TRAM’ revenue
fell 44.2% over the same period of the previous year, and it certainly could be
explained: If I was one of TRAM’ customers, I would cut the contract and move
to another shipping company. I certainly will not take the risk of 'involved'
with the cases of smuggling or anything which is attributed to the company.
Outside the two issues
that have been discussed above, the more interesting story about TRAM is
related to its share prices in the stock market. As already mentioned above, in
September 2011, TRAM had a force majeure where the vessel Lentera Bangsa, which
was one of the company’s major and most expensive fleets, was caught on fire.
Normally when a company suffered a disastrous event like this, its stock will
fall. But for TRAM, it was the opposite. In September 2011, after sideways long
enough in the range of 550 - 600, the stock suddenly flew until reach 1,000 in
January 2012, with a very large volume of transactions. With PBV that had been
more than 6 times, while the company has just experienced a force majeure, and
the financial performance of TRAM wasn’t special at all, it is clear that the
increase of the stock is not reasonable. Moreover, the volume of transactions is
too large (up to 100 million shares per day) for a stock that had never classified
as ‘representing a company with excellent fundamentals and/or bright future
prospects’. Since 2010 until today, every time I read the latest financial
reports of the listed companies on the Indonesia Stock Exchange, TRAM has never
passed the screening.
However, TRAM was able
to stay at the price range of 800 to 1,000. When the company eventually posted
a huge net loss at the end of 2012, instead of going down, the stock rose
further until reach 1,400 (nonsense!). Entering 2013, the company's financial
performance has not yet improved. But still, TRAM was still rising further to
now above 1,800. Because the volume of daily transaction was very large, then
the cost of the net trading fee to be paid by anyone who buy and sell the stock
reached about Rp500 million per day, or Rp 100 billion (US$ 8.5 million) per
year! (assuming that in one year there were 200 trading days). The question is:
Who would spend so much money only for trading a stock of such a small company,
while TRAM’ fundamentals weren’t good at all and the price was very very
expensive? What's in it for him?
And finally, in June
2014, when the stock already at the level of Rp1,800’s per share, the company
had its second and third events: 1. The arrest of vessel Jelita Bangsa by
customs in waters of Riau Islands (continued with the termination of the lease contract
from Pertamina, which was a service user of the vessel), and 2. The management of
TRAM received a letter from IFC which warned the company to immediately pay its
debt. Responded to these incidents, the IDX suspended the trading of the stock.
When the suspension was finally lifted in November 2014, TRAM started to
slashes mercilessly! By dropped more than 20% almost every trading day.
However, when a stock
dropped insanely, then based on experience, regardless of fundamentals and
valuation, at a certain time it would rebound. And that's exactly what happened
to TRAM. When the decline eventually reached 400’s (from previously 1,800’s),
it rose significantly on certain days. And here’s the problem: When the stock
rose, there were many speculators who bought the stock only because they are
interested in the increase, even though they did not know what’s exactly happening
at the company. In addition, at the price of Rp400 per share, PER and PBV of
the stock were still very high. There were a lot of people who thought that the
valuation of TRAM is already low at the price, simply because it has dropped a
lot (from 1,800 to 400, it means down more than 75%).
But well.. the victims are
already fell, and now it seems like TRAM only need a little time to reach its death level of Rp50 per share.
The question is, okay, TRAM might still
expensive at 400. But at the current price of 55, it is now cheap, is not it? Even
its PBV is only 0.5 times. In addition, as already discussed above, if later the
company ultimately receives the insurance claim, then its net equity will be
increased and its stock valuation will become much lower.
So in conclusion, can I
buy it more? Well, of course it is not that simple. If you read again the
discussion above, the problems of TRAM are not just about the fire of vessel
Lentera Bangsa, or about the detention of the vessel Jelita Bangsa by the
authorities, but because of there are too many unanswered questions, such as:
1. Why the management of TRAM sent a claim to the insurers almost three years
after the fire incident? 2. Why the management of TRAM looked like they’re ignoring
the problem of debt to IFC and Bank of Tokyo, until IFC had to file a warning
letter? 3. When the insurance claim will be paid? 4. How does the actual
details of the oil smuggling case involving the vessel Jelita Bangsa? When the
ship would be released and start operating again? 5. Before the cases of Jelita
Bangsa and the warning letter from IFC, how could the stock, against all odds,
continue to moving up, and with a very huge volume of daily transactions? And
6. Based on registration data of security holders, at the end of April 2015, PT
Trada Resources Indonesia and PT Trada International only holds a total of 36%
of the shares of TRAM, or less than 50% plus 1 share, while the rest is held by
the public. So who are the controlling shareholders of TRAM???
But even if we ignore the
questions, then with a poor track record of financial performance, low profitabilities,
huge amount of debts (and also problematic), and there is no certainty about
the future of the company, then TRAM is a ridiculous option for serious investment.
I mean, why would you buy shares of a shipping company which have recently lost
the majority of its income sources, because the customers are certainly do not
want to get involved with.. well .. whatever the cases attributed to the
company?
So once again, we are
not interested in this TRAM. But if you've already hold the stock, then there
are two options: 1. Get out while you can, or 2. Just wait until the company released
two positive news, ie that the company finally received payment of insurance
claims, and the vessel Jelita Bangsa returned operates. When that happened,
TRAM will have a very good reason to get up again.
However, I frankly do
not know when it will happen, it might be very long from now, or even not
happening at all. So perhaps the first option remains the best option.
Nevertheless, the choice is yours.
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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