IT’S a trying time for Shin Yang Shipping Corp, having to manage short-term debt of RM379.6 million and a huge sum of receivables at a time when its cash position is at its lowest in years. It is apparent the Sarawak-based shipbuilder could be financially stressed.

“We are aggressively following up on our receivables to collect payment,” financial controller Richard Ling Peng Liing says in a phone interview. “So, we should be okay without a cash injection.”

It looks like a challenging endeavour. The company had RM28.4 million cash as at June 30 — the lowest level since it was listed in June 2010 — mainly because of a RM45.6 million bank overdraft.

In fact, Shin Yang Shipping has a cash flow deficit of RM20.20 million, its cash flow statement shows.

Short-term borrowings amounted to RM379.6 million as at June 30, while long-term borrowings totalled RM134.3 million, for a gearing level of 43.8%.

Some of the borrowings comprise bridging finance for ongoing projects, in which payments are tied to the completion of progressive work, says Ling. “A lot of these due payments are not reflected in our receivables as yet. We can only bill for them as we complete certain stages,” he tells The Edge.

As at June 30, trade and other receivables stood at RM492 million — the highest level in three financial years.

For the financial year ended June 30, 2016 (FY2016), Shin Yang Shipping posted a net profit of RM7.7 million, a year-on-year increase of 52.7%, largely due to tax income of RM2.8 million, even as revenue fell 20.6% to RM723.7 million. Its share price has fallen almost 12% over the past year.

Rough waters

Shipbuilders that make work vessels and provide repair services for the oil and gas sector have been going through a rough patch following the meltdown of crude oil prices in recent years. Shipyards across Asia grappled with overcapacity and low rates last year, Bloomberg reported, leading to delayed deliveries and cancellation of orders.

“There is nearly no demand for oil and gas vessels,” says Ling.

Miri-based Shin Yang Shipping is not alone. Malaysia has about 100 shipyards, and Sarawak is home to about half of them. The suffering has deepened over the past year, although there have been no reports of Malaysian shipyards closing down as yet, according to the Association of Marine Industries of Malaysia (AMIM).

“Some are barely hanging on,” says AMIM honorary secretary Nazery Khalid. “Order books have practically dried up.”

Shipyards that built offshore support vessels (OSVs) without charter contracts have compounded the situation, he adds. The downturn led to some clients cancelling orders and forfeiting downpayments rather than take delivery of vessels without any jobs.

This in turn casts doubt on whether the industry can achieve the targets outlined in the Shipbuilding and Ship Repair Strategic Plan 2020, launched by Prime Minister Datuk Seri Najib Razak in 2010. Among other things, Putrajaya had aimed for the local industry to double its share of the global new build market, contribute RM19.1 billion in revenue and create 55,000 jobs by 2020.

A silver lining in the current environment could be a possible consolidation in the industry through mergers, which will be market driven in the absence of a regulatory body, says Nazery. “It will be good for the market ... it’s like corporate Darwinism.”

Shareholder ready

If things go south for Shin Yang Shipping, majority shareholder Shin Yang Holdings Sdn Bhd, which holds a 55.03% stake, seems set to step in if necessary.

A cash call plus a share placement may be likely to raise fresh capital.

Shin Yang Holdings, an investment vehicle controlled by the Ling family, appears to be financially prepared. It had RM8.4 billion in assets in the financial year ended June 30, 2015, and liabilities of RM3.6 billion, according to Companies Commission of Malaysia data.

The private firm is in the midst of selling wholly owned subsidiary Shin Yang Oil Palm (Sarawak) Sdn Bhd (SYOP) to public-listed Sarawak Oil Palms Bhd (SOPB), in which the Ling family has a 28.6% stake. SOPB executive chairman Tan Sri Ling Chiong Ho holds a 7.04% stake in the plantation firm.

In the related party transaction, SOPB will be paying RM873 million cash — the sum includes assuming the RM588.6 million loan that SYOP owes Shin Yang Forestry Sdn Bhd, another subsidiary of Shin Yang Holdings.

With over RM870 million cash, Shin Yang Holdings could even afford to take the shipping firm private. Shing Yang Shipping’s price was one third its net asset value per share of 96 sen as at June 30.

Based on last Friday’s closing of 31 sen, Shing Yang Shipping’s market capitalisation stood at RM366 million. The Ling family does not need to spend half the cash proceeds to wholly own the shipping unit. Based on the 31 sen share price, the family just needs to pay RM164.7 million, assuming zero premium on the takeover price. 

Shin Yang Shipping has a fleet of 295 vessels as at end-2015, with a gross registered tonnage of 432,264. Almost half the ships are 10 years or younger.

Ling is the founder of the Shin Yang group of companies, which has businesses spanning construction, property, wood products and information technology, among others.

Shin Yang Holdings is jointly controlled by Ling and his brothers Chiong Pin, Chiong Sing and Chiong Sieng, according to filings with the Companies Commission of Malaysia.

It will be interesting to see how SOPB’s proposed acquisition will go down with minority shareholders (see story below).

As for Shin Yang Shipping, it is buckling down to survive the choppy waters, for as long as it may take.

“People say the turning point [for the industry] is two, three years away... we don’t know, we also cannot predict,” says Ling. “What we can do is focus on what we can do well — no need to worry about things beyond our control.”

Shipping support

Shin Yang Shipping’s shipping segment saw stable contributions from its domestic and container shipping routes, says Ling.

Nearly half of its annual turnover used to come from the shipbuilding segment as recently as FY2014, but that proportion has fallen to just under one third in FY2016.

Its vessels ply Peninsular Malaysia, Sabah and Sarawak, and also transport goods across Southeast Asia.

The company’s relatively smaller container ships, which are easier to fill, has been an advantage, Ling adds. The vessels range from 300 to 700 twenty-foot equivalent units, falling into the smallest major ship size classification called small feeders, which typically operate between small ports.

“There is also a lot of logistical demand from the Pan Borneo Highway project to carry aggregates, stones and so on, which should sustain our domestic shipping segment,” Ling says of the company’s prospects. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.