Swee Joo Bhd New Listing by maclaren1


									 Company Note
                                                                                                                                        16 October 2006

                                          New Listing
                                           Monday, 16 October 2006

                                                   For Internal Circulation Only

                               KLCI : 983.45      Sector : TRANSPORTATION                                                     Bloomberg : SJOO MK

                                                   Analyst : Rosnani Rasul           E-    : Rosnani@ta.com.my                      : 20721277 ext 1623

Fair Value             RM0.90(+29%)                                                                        Swee Joo Bhd
                                                                                                    Leader In East Malaysian Water
                 SHARE INFO
Stock Code                          SWEEJOO
                                                   Investment Highlights
Listing                            Main Board
Enlarged Share Cap           (m)            200        Swee Joo Bhd (SJ) is principally involved in the provision of shipping,
Market Cap                              RM180          shipping agencies and shipping related services. It also involves in sec-
Par Value                              RM0.50          ondary shipping activities including haulage, distribution, warehousing,
IPO/Offer for sale/Placement (m)           66.3        container depot and handling/repairing. Its main income is derived from
Issue Price                            RM0.70          the shipping service which contributed more than 90% of income in FY05.
Oversubscription Rate                    14.29         SJ is currently the leader in East Malaysia (EM) shipping industry with
Estimated Free Float         (%)           31%         approximately 35% market share in terms of capacity. It is the only ship
Tentative Listing Date               17-Oct-06
                                                       owner in EM that has collaboration with Main Line Operator (MLO). SJ is
Major Shareholders           (%)
                                                       also the market leader in coastal shipping in Sarawak.
            Datuk Amar Leonard Linggi - 8.95%
                           Lo Ping Yiu - 8.89%
                                                       SJ currently owns a fleet 26 vessels including 3 that have been received
                                  LMS - 5.50%          this year. In line with the company's aggressive fleet expansion strategy,
                                                       SJ plans to utilise almost half of IPO proceed to buy two 700-TEU ves-
                RATIO & ANALYSIS                       sels in FY07. It will also be buying 1 product tanker next year.
NTA/shr (Post IPO) (RM)             0.76               In the short and long term period, new revenue stream will come from new
Price to NTA         (x)            1.18               ventures in rice, palm oil and coal transportation. SJ also plans to tap
ROE - '06                           15%                into the bullish prospect of Oil and Gas (O&G) industry in EM.
ROA - '06                            8%                The group projects earnings to grow by 30% YoY to RM30m. The strong
Gross Gearing                       28%                earnings growth will come from full year contribution of 3 ships in FY06.
                                                       Another three new ships in FY07 will also contribute to earnings next
 UTILISATION OF IPO PROCEEDS                           year. Given the expected sustainable double-digit growth for trade be-
                                                       tween EM and West Malaysia (WM), we believe this target is achievable.
                                    RM       %
                                                       We are valuing SJ at RM0.90 based on 6x FY07 EPS which is pegged at
Part finance for purchase
                                                       a 30% discount to Maybulk's 8x forward PER. This fair value provides a
  of vessel                       19.84    43%
Working capital                   14.95    32%
                                                       28.6% upside potential to its IPO price of RM0.70.
Repayment of bank borrowings       7.45    16%
Purchase of equipment              2.18     5%
                                                                                    EARNINGS SUMMARY (RMm)
Estimated listing expenses            2     4%
                                                   YE 30 Sept                             2004      2005         2006E         2007F       2008F
                                                   Revenue                                 171       211            255           320         393
                                                   Pretax profit                             15       19             24            32          39
                                                   Net profit                                15       18             23            30        36.6
                                                   EPS                    (Sen)            11.4     14.1           12.0          15.9        18.3
                                                   EPS Growth               (%)               -     23%          -15%           33%         15%
                                                   PER @ IPO Price RM0.70    (x)            6.1      5.0            5.9           4.4         3.8
                                                   Div                    (sen)               -        -              -             -           -
                                                   Div Yield                (%)               -        -              -             -           -

Swee Joo Bhd                                                                 [ 1]                                         New Listing    Company Note
                                                                                     16 October 2006

               We like SJ for the following reasons:

               1. Reputable and Reliable name
                  SJ has carved a reputable name in EM thanks to their long involvement in
                  the shipping business there. Thanks to a good track record, SJ has also
                  earned a reputation as a reliable shipper. Over 20 years business rela-
                  tionship with clients like Nestle and F&N Coca Cola proves SJ's competi-
                  tive abilities. Padiberas National, Dutch Lady, CCM Fertilisers, Behn
                  Meyer, Evergreen Marine Corporation are among SJ's major clients.

               2. Coastal Network Advantage
                  SJ is one of the largest coastal ship owners and shipping operators in
                  Sarawak. This gives them a strategic advantage to tap on the growing
                  needs of shippers in Sawarak. Till to date, it has 6 vessels plying Sarawak
                  coastal rivers with a total capacity of 440 TEUs and 1,950 tonnes for
                  conventional cargo.

               3. Interconnectivity Alliance with Evergreen Shipping
                   SJ has formed an alliance with Evergreen Shipping Corp. and Bintulu
                   Port to convert a loose shipment of sawn timber and timber based prod-
                   ucts into containerised shipment. Being the only ship owners in EM to
                   have an alliance with Main Line Operator (MLO), Evergreen, definitely
                   enhance SJ's reputation as a reliable shipper. As Sarawak timber indus-
                   try is expected to be bullish, SJ is well positioned to tap on the growing
                   timber shipping business. Priority in ship's space and free container rental
                   are among the advantages from the alliance.

               4. Total logistic solution partner
                  SJ's marketing strategy is to provide a 'total logistic solution' with the
                  emphasis on the provision of door-to-door services. SJ wide ranges of
                  service include shipping, warehousing, IT, freight forwarding, haulage and
                  consolidation of cargo. This comprehensive service is a growing trend in
                  Malaysia due to its cost savings advantage.

               5. Tapping into Lucrative Palm Oil Shipment
                  In the short term period, SJ plans to tap into the growing market for the
                  shipment of palm oil from Sabah and Sarawak, thanks to its strong pres-
                  ence in Bintulu. Note that Bintulu Port is one of the ports in Sabah and
                  Sarawak which has the facilities to handle palm oil shipment. For this
                  purpose, SJ has taken delivery of a set of tug and palm oil/container
                  barge in 2006. The company is also looking to transport diesel shipping
                  and refined oil via tankers within Malaysia and Intra-Asia region. The PBT
                  margin for palm oil is about 40% vs. 18% or less for others.

                  Note that the volume of national production of palm oil is expected to
                  increase from 14.96m tonnes at the end of the 8th Malaysian Plan (2000-
                  2005) to 19.56m tonnes (+31%) at the end of 9th Malaysian Plan where
                  much of the new acreages come from Sabah and Sarawak. These states
                  target to add 1m new hectares by 2010.

Swee Joo Bhd                     [ 2]                                  New Listing    Company Note
                                                                                    16 October 2006

               Earnings Forecast
               The 30% YoY earnings growth in FY07 are expected to be achieved from the

               1. New delivery of 1 product tanker in FY07 (approximately 9 months contri-
               2. Full year contribution from 1 new tug and barges in FY06
               3. New delivery of 1 tug and barges in FY07
               4. New delivery of 11 prime movers in FY07

               In addition to these, average loading and lifting revenue is expected to rise
               by 7% and 23%. Given a healthy double-digit growth forecast for trade be-
               tween EM and WM in the immediate term, we believe the earnings target is

               Business Background
               SJ is a shipping company that provides shipping service for container, gen-
               eral cargo and tug & barge services. In addition to that, the group also gives
               related shipping services such as freight forwarding, warehousing, haulage,
               distribution and container handling & repairing. It derives some 90% of rev-
               enue from the shipping business. Currently, it owns and operates a total
               fleet of 26 vessels including 13 container, 3 general cargo, 5 barges and 5
               tugboats. SJ is also a box operator for the regional routes that covers Ho Chi
               Minh City (Vietnam), Jakarta & Surabaya (Indonesia) and Singapore. Some
               69% of SJ's 12k container boxes are less than 3 years old.

               Experience Management
               SJ grew by leaps and bounds thanks to the Jugah and Sim family. Collec-
               tively, they have more than 60 years of rich shipping experience. Having built
               a good reputation as a reliable and efficient ship owners in EM, this goodwill
               is expected to bring SJ into greater heights.

               Capacity Expansion
               SJ plans to utilise almost half of the IPO proceed (approximately RM23m) to
               buy two 700-TEU (twenty-foot equivalent unit) container ships. This is on top
               of the new product tanker that is due for delivery in FY07. The container
               ships, which will be deployed in regional routes, fit their plans to further
               expand regionally by widening coverage into the Asean region, particularly
               the Philippines and Myanmar.

               New Revenue Stream
               In the short and long term period, SJ is planning to tap into the following new
               shipping services:

               1. Rice transportation from Bangkok and Ho Chi Minh to EM as it plans to
                  capitalise on the group's good connection in Thailand and Vietnam.
               2. Coal transportation from Indonesia.
               3. Transportation service for Oil & Gas (O&G) industry in including supply of
                  boats, handling tugs and work barges to ride on the growing O&G activi-
                  ties in EM as it could last for the next 4-10 years

Swee Joo Bhd                     [ 3]                                 New Listing    Company Note
                                                                                    16 October 2006

               Capacity Utilisation
               SJ's vessels are running at 87% capacity from WM to EM and approximately
               29% capacity from EM to WM. Due to the nature of 2 way trades where
               trade imbalance is bound to happen, we are not overly concerned with the
               average surplus in capacity as we view it as 'inevitable'. The surplus capac-
               ity in trade does not represent a loss of revenue opportunity, in the mean-
               time. This is because the pricing or freight charges for the eastbound take
               into account the empty and near empty westbound return leg. Thus, ship-
               ping company such as SJ with eastbound trade may gain in freight charges
               for cargoes carried on the return leg to ports in WM.

                                             CONTAINER VESSEL INFO
                 No    Ship Name           TEU             GRT
                 1     Johan Fortune       713             9009
                 2     Johan Star          424             5148
                 3     Johan Bright        431             5211
                 4     Johan Progress      422             6269
                 5     Johan Emerald       358             4761
                 6     Johan Amber         352             5452
                 7     Johan Crystal Dua   335             5077
                 8     Megah Jaya Dua      316             3984
                 9     Swee Long Satu      226             4012
                 10    Johan Jade          226             3855
                 11    Johan 11            138             1963
                 12    Johan 111           138             1963
                 13    Johan               104             1467
                       Total               4183
               Source: Swee Joo

               SJ's nearest competitor is Perdana Service, a consortium comprising of PDZ
               Service, MISC Bhd and Malaysia Shipping Corporation Bhd. In terms of ca-
               pacity, SJ has an estimated market share of 35% vs. 34% for Perdana Serv-
               ice. However, SJ's 'door-to-door' service puts the company in its own league
               and currently the only ship owner in EM with such service.

               1. Bunker cost
                  As a ship owner, there is a risk of increasing bunker cost due to the
                  unfavarouble movement of crude oil price. The risk is moderated, how-
                  ever, by SJ's 'Emergency Bunker Surcharge ' (EBS) policy where it will
                  charge customers should there be any increase in bunker cost. Hence,
                  the increases in bunker costs will have minimal impact on SJ's financial
                  performance. Bunker contributes about 14% of revenue and represents
                  about 22.5% of operating cost.

               2. Fluctuating rates
                  Shipping players are always subject to the risk of softening shipping rates.
                  This will, however, be overcome by economies of scale through the addi-
                  tion of new vessels. Note that, SJ has received 3 new vessels this year. It
                  will also receive another 3 by next year.

Swee Joo Bhd                       [ 4]                               New Listing    Company Note
                                                                                                                                   16 October 2006

                                                Valuation and Recommendation
                                                Our fair value of RM0.90 is based on 6x FY07 EPS which is pegged at a 30%
                                                discount to Maybulk's 8x forward PER. We accord a discount to arrive at
                                                SJ's fair value due to Maybulk's superior net profit margin and bigger market
                                                capitalisation. In the meantime, we are not comparing it with foreign players,
                                                as SJ's market capital is too small. Its limited scope of shipping business
                                                also makes comparison unfair. At a fair value of RM0.90, upside potential is
                                                28.6% to its IPO price of RM0.70.

                                                             PEERS COMPARISON
                            Share       Share O/S       Mkt Cap          PER             EPS        Revenue       Net Profit       Margin
                            Price                                        FY05            FY05         FY05          FY05            FY05
                            (RM)            (m)          (RMm)            (x)            (sen)       (RMm)         (RMm)
Neptune Orient Line (NOL)    5.07          1,456          7,382            9               55        26,000         2,900           11%
Mitsui OSK (MOL)              40           1,205         48,200           18              227        33,000         2,700           8%
MISC                         8.65          3,720         32,178           21               77        10,651         2,857           27%
Maybulk                      2.68           800           2,144            9               81          396           209            53%
Swee Joo                     0.7            200            140             6               12          255            23            9%
Hubline                      1.17           151            177             4               30          414            46            11%
Halim Mazmin                 0.68           321            218            34                2           55             7            12%

The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions
are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept
no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest
in the securities and/or companies mentioned herein.
                                                     for TA SECURITIES HOLDINGS BERHAD
                                                   Yaw Chun Soon, Executive Director - Operations
                                                        TA Securities Holdings Berhad (14948-M)
                                        (A Participating Organisation of Bursa Malaysia Securities Berhad)
                                      Menara TA One, 22 Jalan P Ramlee, 50250 Kuala Lumpur. Malaysia
                                                 Tel : 603 - 2072 1277. Fax : 603 - 2032 5048

Swee Joo Bhd                                                            [ 5]                                         New Listing    Company Note

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