Having read the news of what management has to say about its shipyard business, it seems management don’t have a clue on what to do. It seems that they actually expected their shipbuilding venture to be profitable at first, but found out they were not very good at it. Meanwhile, there is no real indication they are starting their docking business just yet. By treating their shipyard as ‘Construction in Progress’, they allow themselves to capitalise expenses to the balance sheet. Management have destroyed a lot of value by investing so much in this shipyard business, but bearing no fruits.
For its shipping business, I believe the reduced profits is understandable due to the down cycle faced by all shipping companies in general the past few years. It also shows how difficult the shipping business is. Still, there is still potential upside in shipping rates in the future with a higher oil price and world economic growth. This will allow SOCI to negotiate higher rates for their time charter contracts.
With not a desirable business model, and management which lacks direction, I decide to remove SOCI from the model portfolio. While it is statistically cheap, I believe it is not a good business to hold for the long run.