21/01/2018: Surat Thani based ferry operator Raja Ferry Ports Plc has announced plans to commence operation of a new passenger ferry service between Krabi and Koh Yao, which is one of Thailand’s lesser visited islands located in the Andaman sea between Krabi and Phuket.
Background: Regular visitors to the islands of Koh Samui and Koh Phangan will be very familiar with the Raja ferry company which operates 15 car ferries a day to Koh Samui and 7 to Koh Phangan from their operational base at Donsak Raja Ferry Port in Surat Thani province. The Raja ferry company started in 1981 and from it modest beginnings with a single cargo ferry, the company is now listed on the Thai stock exchange through which it has raised the capital to purchase 14 car ferries and construct dedicated ferry ports in both Donsak and at Lipa Noi on the island of Koh Samui. The latest investment by the Raja ferry company is its new R11 ferry, the biggest in its fleet, capable of carrying 400 passengers and 80 cars or 40 trucks.
Analysis: The decision to start a passenger only ferry service in the Andaman sea marks a massive change in the strategic aims of Raja Ferry Ports Plc, and as such constitutes a massive risk of which investors in their shares should be cautious. Although the Raja ferry does a brisk trade in taking passengers between Koh Samui, Koh Phangan and the Thai mainland, their principal business is as a cargo ferry and the majority of the company’s revenue comes from transporting the very frequent trucks supplying the supermarket chains and branded builder’s merchants which have come to the islands over the last decade. Passenger fares on the ferries are the cheapest of any of the ferries running in the Gulf of Thailand: 130 THB between Donsak and Koh Samui and 210 THB between Donsak and Koh Phangan. The decision to take an entirely new type of business with passenger only services in a new location will entail the company adopting a new business model with which it has no proven track record and establishing new infrastructure. We note that the operating profit of the company has declined over 50% in the January to September 2017 period compared to the same period in 2016, most likely due to a weakening of visitors numbers to the two islands and the knock on effect this has had on retailers. Investment decisions made by Raja Ferry Ports Plc during the boom times in 2015 and 2016 make less sense now and the company appears to be looking for new ideas to make up a shortfall in cash flow to fund these investments. We hope the company can turn the situation around as they provide a valuable service as the only car ferry operator to the island of Koh Phangan and a provider of cheap reliable passenger ferry services relied on by residents of Koh Samui and Koh Phangan. The core business is sound, however, the company appears to have made a mistake in buying too many ferries to the point where they have more capacity than the demand warrants.