Towards Financial Freedom
Baker Technology - Charting New Growth Path
We met up with the management team of Baker Tech (BTL) and came away with a positive view on BTL's strategic plans. In the mid-term, BTL's expansion into rig ownership through Discovery Offshore (DISC) will drive EPS growth in FY13-14F. DISC could be eyeing more rigs and BTL might continue to raise its stake in DISC. BTL trades at FY12 excash core P/E of 11.5x and could compress to 6.2x in FY14F. Unrated.
Company background: BTL has two distinct business units: i) Sea Deep Shipyard, a wholly owned subsidiary, is involved in the manufacturing of specialised equipments for offshore assets; and ii) 20.16% stake in DISC, a pure play rig owner listed in Oslo. DISC has two KFELS A Class rigs under construction, which are expected to be delivered in Jul 2013 and Oct 2013.
Focusing on existing rig component business and rig ownership. BTL is looking to expand its existing rig component business with a view to carry out on-site upgrade/maintenance work. Armed with a cash balance of SGD99m (post dividend), we believe BTL could also raise its stake in Discovery Offshore, allowing the company to add more rigs to its existing fleet of two units.
Sales of rig equipments should remain steady. BTL's equipment unit, Sea Deep, has an order book of USD49m. Management is confident to replenish its order book and is optimistic that the current jackup cycle will be longer but the pace of newbuild orders will be lower than the upcycle seen in 2007-08.
We estimate DISC to add SGD12m to FY14 net profit. As the jackup market is tight, we believe DISC could easily secure charters for the two KFELS Super A Class rigs before they are delivered. We estimate that each jackup rig can generate an annual net profit of USD24m to DISC. BTL's 20% stake allows them to recognised USD4.8m (SGD6m) per rig per annum.
Valuation: Trades at 11.5x FY12 ex-cash core P/E. Sea Deep can deliver a steady annual net profit of SGD14.6m. Adding that to our estimate of SGD12m net profit from DISC in FY14, this will raise BTL's FY14F net profit to SGD26m, translating into FY14F ex-cash P/E of 6.2x.
Source: OSK
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