Towards Financial Freedom
MPM - Better Charter Rates In Store
MPM's 2QFY13 results were slightly weaker than expected as poor weather dampened the tug & barge operations while volumes at the drydocks declined. We see much stronger core performance in FY14F as its expanding fleet of Indonesian offshore support vessels (OSVs) will enjoy a 30% revision when their charters expire.
- Surprisingly low drydock volume, protracted monsoon period in 2Q. While the drydocks still posted a 75% utilization rate, the actual repair work per vessel was uncharacteristically lower than average. This resulted in the company's quarterly revenue coming in at a mere SGD4.8m versus SGD8m-SGD9m typically. The unusually long monsoon season also negatively affected its tug & barge operations.
- Trimming FY13F core earnings by 13%; adjusting historical numbers for comparability. We are paring down our FY13F core earnings estimate by 13% as we had been a tad too optimistic on subsidiary PT Bina Buana Raya's (BBR)'s current-year contributions. Notwithstanding this cut, we still see BBR growing at 40%-60% pa. for the next three years. We are also adjusting MPM's historical numbers as it no longer recognizes revenue on vessels built for and sold to BBR, preventing an apple-to-apple comparison. The adjustments still overstate its FY12 earnings as its breakdown for third-party revenue is unavailable.
- 30% charter revisions in 1QFY14F. The charter rates for BBR's OSVs should see a 30% increase to match Indonesia's levels when their charters expire in 4QFY13. Also, MPM expects the four AHTS vessels it is due to deliver to BBR in FY14F enjoy Indonesia's strong rates and contribute to the 29% core earnings jump in FY14F.
- Strong core earnings growth, low valuations. In view of the robust operating environment in Indonesia, we are forecasting a 20%/29% core earnings growth for FY13F/14F. We like MPM for its: i) exposure to cabotage-protected Indonesia, ii) high margin businesses, iii) strong earnings growth, and iv) low 7.1x/5.5x FY13F/14F EPS and 0.88x/0.77x FY13F/14F BV on 15% ROE. Our SGD0.61 TP is based on a 9x blended FY13F/FY14F EPS.
Source: RHB
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