Hi Frantzen, I didn't know this blog and it seems the author stopped updating since 2019. What's the story here? Do you know why the author stopped writing?
A few of his larger positions went against him, and he lost interest in sharing his performance—at least, that’s my guess. Red remained active in the discussions for some time after he stopped posting new ideas.
I learned a lot from this blog, both in terms of thinking/modeling and keeping investment cases simple. Red was very intelligent, but that might have been his downfall. Intelligence is not an advantage if you invest in increasingly complicated and risky ventures.
During a lease period the company receives variing payments dependent on the age of the ships. For booking purposes these non linear payments are transformed to linear payments over the full lease period .
As a sidenote, there are currently basically 3 other listed Car Carrier companies, all in Oslo. Hoegh Autoliners, Gram Car Carrier and Wallenius Wilhelmsen. Gram Car Carrier was recently acquired by the largest container liner in the world (Mediterranean Shipping Company) and will stop trading in few weeks' time.
1. I can follow your argument about China's increasing export of EVs, but it would be helpful to see how much of China's EV export constitutes the total car export volume. For instance, if this number is very small, then maybe China's EV export won't significantly impact the freight rate. Alternatively, maybe non-EV car exports is decreasing which might offset the increase in EV car exports. These scenarios, if are true, could challenge your logic. However, I do think this might be a minor point, since the main driver of the freight should be the low supply of ro-ro ships.
2. If I understand correctly, the benefit from persisting high rates mainly comes from the company's two oldest ships. You also mentioned that it's very likely the company will sell them when their contracts expire. It might be useful to compare these two mutually exclusive scenarios. Is it possible that selling these two ships would result in much less economic gain compared to renting them for another five years? I believe the latter is more likely. My understanding is that a vessel's life expectancy is around 20 years (at least for bulk carriers and tankers). Beyond that point, inspection and maintenance costs, as well as off-hire days, increase dramatically.
3. Regarding the margin of safety, I agree the stock appears cheap when looking at PB, but not as much in terms of net current assets. Historically, several shipping companies have traded below book value even during their best days for various reasons. By the way, a small suggestion: it would be easier for readers if you could include basic info about the company in your post, such as price, market cap, debt, etc.
Hope you find my comments helpful:) Thanks again for the nice post!
Thanks for the response. For the first point I can't link a picture of a chart in a comment sadly but according to BBVA research EVs currently take up 50% of Chinese vehicle exports, with China being the largest vehicle exporter in the world.
Roro ships have a longer life expectancy. Gram Car Carriers assumes ships are scrapped at the age of 28. At higher rates companies are usually willing to run their ships for longer, plus Singapore Shipping has a history of scrapping their ships at around 30 years old. Selling at peak cycle, I don't believe that selling would result in significantly less economic gain.
As for point 3, thanks for the feedback. It probably would have been worthwhile to do more specific analysis of the financials, especially the balance sheet. To be honest I don't think about price to book too much, I focus more on earnings power when I'm analysing companies.
Yes I saw this, fantastic news as rates are still very high. Confirms the first stage of the thesis and we will see a material boost to revenue once this contract starts.
Thanks for the write up. It would seem your thesis is highly dependent on there shipping rates staying high. Not much of a macro person but I think as rates come down and supply chain heal those would come down too? Should also highlight what would make your thesis invalid (ie risks).
Sorry, I totally missed this. The thesis only needs to stay high for long enough to renew the leases comming off in the next two years. The largest one has already been renewed at elevated rates, the other one is in a year. Don't really need to have a long term view of rates.
Those who have followed the finblogs for a long time might remember: http://quinzedix.blogspot.com/2015/11/singapore-shipping-corporation-pure-car.html?m=1
Oh thank you, this is super useful. A bit before my time I think, I was 15 at the time of publishing.
Hi Frantzen, I didn't know this blog and it seems the author stopped updating since 2019. What's the story here? Do you know why the author stopped writing?
A few of his larger positions went against him, and he lost interest in sharing his performance—at least, that’s my guess. Red remained active in the discussions for some time after he stopped posting new ideas.
I learned a lot from this blog, both in terms of thinking/modeling and keeping investment cases simple. Red was very intelligent, but that might have been his downfall. Intelligence is not an advantage if you invest in increasingly complicated and risky ventures.
I see. That's unfortunate. I agree that keeping things simple is very important. Thanks for sharing the story !
"The company has taken advanced payment for many of the lease contracts .. unearned payments"
This is explained by chairman C.K. Ow in ar2016, see page 5, Charman's Message - financial performance. https://singaporeshipping.listedcompany.com/misc/ar2016/ar2016.pdf
During a lease period the company receives variing payments dependent on the age of the ships. For booking purposes these non linear payments are transformed to linear payments over the full lease period .
As a sidenote, there are currently basically 3 other listed Car Carrier companies, all in Oslo. Hoegh Autoliners, Gram Car Carrier and Wallenius Wilhelmsen. Gram Car Carrier was recently acquired by the largest container liner in the world (Mediterranean Shipping Company) and will stop trading in few weeks' time.
Thanks for sharing your ideas. Few comments:
1. I can follow your argument about China's increasing export of EVs, but it would be helpful to see how much of China's EV export constitutes the total car export volume. For instance, if this number is very small, then maybe China's EV export won't significantly impact the freight rate. Alternatively, maybe non-EV car exports is decreasing which might offset the increase in EV car exports. These scenarios, if are true, could challenge your logic. However, I do think this might be a minor point, since the main driver of the freight should be the low supply of ro-ro ships.
2. If I understand correctly, the benefit from persisting high rates mainly comes from the company's two oldest ships. You also mentioned that it's very likely the company will sell them when their contracts expire. It might be useful to compare these two mutually exclusive scenarios. Is it possible that selling these two ships would result in much less economic gain compared to renting them for another five years? I believe the latter is more likely. My understanding is that a vessel's life expectancy is around 20 years (at least for bulk carriers and tankers). Beyond that point, inspection and maintenance costs, as well as off-hire days, increase dramatically.
3. Regarding the margin of safety, I agree the stock appears cheap when looking at PB, but not as much in terms of net current assets. Historically, several shipping companies have traded below book value even during their best days for various reasons. By the way, a small suggestion: it would be easier for readers if you could include basic info about the company in your post, such as price, market cap, debt, etc.
Hope you find my comments helpful:) Thanks again for the nice post!
Thanks for the response. For the first point I can't link a picture of a chart in a comment sadly but according to BBVA research EVs currently take up 50% of Chinese vehicle exports, with China being the largest vehicle exporter in the world.
https://www.bbvaresearch.com/wp-content/uploads/2024/06/202406_Chinese-EV-sector_forging-ahead-amid-intensifying-headwinds.pdf
Roro ships have a longer life expectancy. Gram Car Carriers assumes ships are scrapped at the age of 28. At higher rates companies are usually willing to run their ships for longer, plus Singapore Shipping has a history of scrapping their ships at around 30 years old. Selling at peak cycle, I don't believe that selling would result in significantly less economic gain.
As for point 3, thanks for the feedback. It probably would have been worthwhile to do more specific analysis of the financials, especially the balance sheet. To be honest I don't think about price to book too much, I focus more on earnings power when I'm analysing companies.
Thanks for the comment, super helpful.
I didn't know Roro ship has a longer life expectancy, thanks to point this out!
Singapore Shipping release their 2025 full year financials result on 29 May. S$0.01 cent dividend was declared
Presume you saw this in Dec: General Announcement: UPDATE ON VESSEL OF SINGAPORE SHIPPINGCORPORATION LIMITED
https://www.smartkarma.com/entities/singapore-shipping-corp-ltd/announcements?item=8373115
Yes I saw this, fantastic news as rates are still very high. Confirms the first stage of the thesis and we will see a material boost to revenue once this contract starts.
I tried to speak to management - they politely declined without an obvious reason provided. Meanwhile they’re buying on the market on a daily basis.
Yeah management has a poor history with shareholders, but I'm not too worried with the aggressive insider purchases.
Thanks for the write up. It would seem your thesis is highly dependent on there shipping rates staying high. Not much of a macro person but I think as rates come down and supply chain heal those would come down too? Should also highlight what would make your thesis invalid (ie risks).
Sorry, I totally missed this. The thesis only needs to stay high for long enough to renew the leases comming off in the next two years. The largest one has already been renewed at elevated rates, the other one is in a year. Don't really need to have a long term view of rates.