Recent Actions – A Gamble with Swissco and The Belief in Keppel DC Reit?

STI falls below 2800 this week. The
year started with the months of Jan and Feb seeing major indices in the world
tumbling. The story almost reversed in Mar when the markets rally coming back
with a vengeance. Could it be the same story of up and down for the rest of the
year? Or could a major good or bad news result in a more permanent up or
downtrend? It is anybody’s guess for now.  
Swissco
Anyway, this week, I took a huge
gamble to load up Swissco at 0.182 – literally an Oil and Gas dependent stock! Hooo…..
Risky! Playing with fire! Not sure I wanna do that!” Likewise, I am quite
bearish in the O&G industry at least until next 1-2 years. Read my earlier
articles:
Then why?
Short term trading. Speculation. Perhaps
the belief that Swissco shares had overdone its selling. The thrill of taking
some calculative risk!
The market in the short term does
not care about fundamentals!
Anyway, I had followed Swissco stock
for 6 years now, buying and selling its shares several times. As for knowing the
company in work, it has been more than a decade.
About Swissco stock
Not so relevant for short term trading, but just for readers’ information
for more about Swissco as follows. Do remember that I consider myself an oil
and gas blogger who is passionate about the industry despite the oil price
is almost crushing it up! 
Over the years Swissco business has
totally transformed from a small tug boats and barges operators to a OSV and
rig operators. The owners of the company also changed hands several times.  
As of today, Swissco is backed by
Tan Kim Seng and family who were already in business since 1974. Tan is an oil
and gas tycoon where he profited from the sale of KS Energy which he founded, to
Indonesian tycoon Kris Wiluan. You can read more about Tan Kim Seng
here. He is currently the co-founder of Tembusu
partners and via Kim Seng Holdings “KSH”, he also has stakes in Heeton Holdings
and is director/shareholder of Viva industrial Trust. The one running Swissco
is his brother Tan Fu Gih.
Of late, for its FY15 results,
Swissco announced a profit of US$31.2 mil. FY14 profit was US$15.9 mil.  So why the sharp decline in share price when
profit almost doubled within a year?
This is due to the latest 4Q15
results, where Swissco announced impairments of US$17 mil on vessels and rigs
which resulted in a net loss of US$15 mil based on revenue of US$21.7 mil. Many
of the rigs owned by Swissco or co-owned (JV bet. Swissco-Ezion) are either
already off-hire or expected to be off-hire in year 2017. The story is not so
different in the OSV segment. Hence the battered share price!
Another downside is the net gearing
of Swissco is currently at a high of close to 80%. Note that Swissco on Sep
2014, issued S$100 mil notes at 5.70% due in Apr 2018. This means that cash
flow is going to be very tight going forward and if the oil situation does not
recover in the next two years, the company will likely see troubles ahead.
On the flip side, recently CIMB has
recently issue a report that even if 6 of the 9 rigs Swissco operates were to
be scrapped and impaired at US$170 mil, the current price is also over-bearish.
Refer
here. Disclaimer: I am not a believer of Analyst
report! That said, there are some valuable info/facts and figures that we can
use for reference.
Always keep an open mind, and do not give yourself unnecessary
restrictions, such as always lamenting that all analyst reports are losers…I
not going to read it…it is useless totally…And then only be over-conceited that
how good you are even when you have not even starting to show any results or have not earn any money yet, or still using mummy/daddy money to build a portfolio to earn money. 
Be a clever
guy/gal who is able to extract the valuables in what others may thought it is
junk. End of the day, be humble when you are not there yet. Even when you are there, be humble also. Keep learning! 🙂
The main difference of Swissco
compared to Keppel O&M and Sembcorp Marine is that the former is shipowner
while the latter two are shipbuilder in its core. Shipowner being higher in the
value chain is more elastic to oil price compared to shipbuilders which may
otherwise still have many unfinished/untaken ships in its yards even when the
oil price rises.  
Most of the Swissco rigs that are
off-hire are for PEMEX. PEMEX recently had a new CEO, but I do not believe he
is a magician and can orchestrate a quick turnaround. On the other hand, there
still exists demand of shallow water offshore vessels in Middle East, India and
potentially Iran. Swissco’s hope is to penetrate these markets.
Swissco also owned a young fleet and
these vessels are normally built at a conservative pricing. The rigs owned are
also second-hand making them much cheaper than the newbuilt ones. Although the
rigs are second-hand, but they are well upgraded and well maintained operated
by reputable and experienced operators of Ensco and GSP. Not all rigs are for
drilling also and some are for offshore accommodation purposes. Overall, the
aforementioned reasons do put them in a better chance comparatively in getting
contracts in this very tough market with low pricing. I am not saying they “will”
get contracts, and please do not quote me! Swissco also co-owned several rigs
with Ezion.
This week, Swissco also announced an
MOU to acquired India based VM Marine, a ship owner and management company.
Nothing is definitive and firm yet and no mentioned how the acquisition is
funded, but seems like something is brewing?
Could it be good news of penetration
into India market or other reasons…with further burden of rights issues or
further issuance of shares? We shall see!
At price of S$0.182, PB is 0.35x.
Ok, price has risen to 0.185 as of last trading day.
Keppel DC Reit
I also added Keppel
DC Reit
with the belief that the future world will be more
extensively data-connected and requires more Data centres. This one is more “long
term”!
The
shares added are going into my SRS. This purchase is funded when I offload my
stakes in Starhub and M1 and betting more on Data over Telco at least over the
next few years. Or some sort of rebalancing, if you like to call.
At
current price of 1.05, Keppel DC Reit has a PB of 1.14, seeing a yield of 6.5%
with an aggregate leverage of 29.2% as of end 2015.  
Read
related posts below:

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11 thoughts on “Recent Actions – A Gamble with Swissco and The Belief in Keppel DC Reit?

  1. Hi EH,

    Not quite.

    There will always be competition in business.
    I do not believe that you can identify a trend and then say this company sure successful bcos it is in this industry. Management, track records, financial figures, understanding of the business, focus in the core.. etc all matters.

    Google, Alibaba, local telco, investment funds coming into the market fiercely etc.

    Kep DC not just in Sg already now in AU, NL MY, Ger, hence market size is sizeable.

    Barrier of entry is not as low compared to normal industrial reit if u go deeper. DC Requires high level of reliability, many backups in power, battery, generators, storage, raised floor, special cooling, network comm connections etc

    Need high level of experty n reputation for reliability which Keppel so far exhibits.

    Of course there r many risks… tech advancement making servers smaller requiring lesser space, Equinix (largest DC player) very aggressive, new players entering market etc…

  2. Hi Rolf,

    Prudent move to switch from Telcos to Data centres. I also foresee a future where people are gorging more and more data.

    Singapore seems to be the premium choice for data centres in this region due to our political stability, lack of natural disasters and a supply of skilled workforce.

    1. Hi DK,

      Yes. The lack of natural disaster is a good one!

      We must not forget that technology is like tide while can raise all boats can also sink them.

  3. IMHO, my preference is Ezion over Swissco. but both coy are somewhat related. anyhow, thats just me .. i think swissco might be subjected to potential acquisition.

    if such scenario happens, then it will be bonus for you.

    1. Hi FC,

      Thanks for ur humble opinion. Tan Kim Seng use to the the boss of Ezion boss Chew when the latter was working for the former in KS Energy. KS holdings owned substantial Ezion.

      Ezion had more assets on liftboats and also owned Ausgroup which are the main crucial differences to Swissco. I also wrote several articles about Ezion/Liftboats in my blog.

      Oh…. Swissco subjected to acquisition? That sounds interesting.

  4. Swissco price has been dropping like stone in past few months.
    Is it wise to average down now ?

    Thank you

    1. Hi, frankly it's not wise for me to advise u because I do not know ur position n how much SWISSCO u owned as a percentage of ur portfolio.

      I know mine well n hence I can better know what I m gg to do next for myself.

      It was a gamble I took in Apr this year. And the gamble seems to be a wrong one judging from today's share price!

      So I acknowledged. If I average down again, it is going to be another gamble…

      So when it is gambling, it's all 50-50 and luck plays more part than the rest.

      I stop gambling recently, but does not mean I will stop entirely in future. As long as we know if it's going to be a big or small gamble and even if I lose… "i m prepared to lose all since I already mentioned it's a gamble!"

      Hope this reply helps.

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