Elite Client Idea #19

Singamas Container Holdings Limited (HKEX ticker: 716; Price: HK$ 0.63)

Singamas (‘group’) is a container manufacturer (97% of sales) and logistics operator (3%). It operates four factories in China and nine depots in the mainland and HK. (It is listed in HK but reports in US$.)

Its immediate holding company is Pacific International Lines Pte Ltd, which is ultimately controlled by Singapore’s Temasek Holdings.

Geographical split of sales is as follows: Singapore (25%), HK (25%), Middle East (12%), Europe (12%), PRC (10%), Taiwan (6%), USA (5%), Others (5%).

The industry experienced a surge in demand in 2021 and consequent overproduction of inventories. Near-term demand is expected to weaken, particularly from Europe, and the oversupply of inventory will further dampen selling prices. Management expects a recovery of demand only in 2024.

The group has reported volatile revenues and profits in the recent past. It reported TTM revenues of US$ 1.17b, ebitda of $235m, and net profits of $187m.

FY21 performance appears to be a result of unusually favorable operating conditions. The group has, however, generated average earnings of ~$60m in the last decade.

Cash flows were relatively weak until FY21 when it collected on its receivables from the holding company and its subsidiaries totaling $150m. It was also aided by profitable divestitures of subsidiaries in the recent past. Nevertheless, operating cash flows have averaged ~$60m over the last 10-12 years.

The balance sheet is currently flush with net cash of $374m. Net current asset value stood at $402m (incl $37m of investment properties), and tangible assets stood at $596m.

The group has various investments in joint ventures and associates – but they appear to be in the same industry and are profitable in aggregate.

The equity is currently trading for US$ 187m, which is ~47% of net current asset value, and ~3x average earnings.

Management have paid out generous dividends – especially recently when its cash flows were bolstered. The last three dividend declarations have aggregated $133m, which is 89% of market cap.

Management intends to focus more on specialized/customized containers, which have more robust profit margins and are less cyclical. This currently comprises only 10% of revenues but management expect to build it up to 50% of the sales mix in 3-5 years, which is uncertain. In addition, there is a possibility of acquisitions in related areas.

At the current price, however, the patient investor appears to be getting substantial value for money considering the future beyond the bleak near-term prospects.