Towards Financial Freedom
Taking Another Bite Of The Indonesian Pie
MPM announced that its associate PT Bina Buana Raya (BBRM) has acquired a 9,000bhp AHTS vessel to be deployed in Indonesian waters. Channel checks indicate that this is a bargain-priced asset, resulting in an ROE of 90% on this vessel. Future vessel additions will provide visibility to FY14F growth. MPM is deeply undervalued at 4.9x FY14F EPS with 39% growth visible, 0.85x P/B while delivering 15%-16% ROE.
- Indonesian market offers 30% premium over regional rates. We see this vessel, MP Prevail, earning USD2/bhp/day, which is the market rate in Indonesia. Our model indicates that this vessel can earn a 50% net margin owing to the premium charter rate. Channel checks also reveal that this is a bargain-priced asset bought from a distressed yard, at a price of around USD18m compared to a market rate of about USD24m for a 9,000bhp AHTS vessel. The vessel will be funded with 20% equity and 80% debt. The combination of the high charter rate, low purchase price and leverage yields an ROE of 90% (See Figure 1), contributing about SGD2m per year to MPM's PATMI. Our calculations further show that future assets, purchased at market prices, will still enjoy a 60% ROE at the prevailing charter rates. (See Figure 2)
- FY13F a year of consolidation and preparation for bright FY14F. This year saw BBRM being listed and MPM hiring a new team of Offshore veterans to spearhead the growth of the Offshore Support Vessel (OSV) fleet. We cut FY13F EPS by 6.3% given rising overheads and maintain our FY14F EPS as the vessel addition is in-line with our model, which assumes four more vessels to be delivered over FY14-15. We see 39% EPS growth in FY14F from: i) 30% jump in rates from renewal of charters in Oct-Nov; ii) doubling of the Indonesian OSV fleet; and iii) shipbuilding orders and higher drydock volumes.
- Current valuations have priced in slow FY13F. MPM is in deep value territory at a mere 4.9x FY14F EPS with 39% growth on the horizon. Further, it is trading at a current P/B of 0.85x while delivering 15%-16% ROE. The recent pullback is pure market noise, and offers an extremely attractive entry point to gain exposure to the lucrative Indonesian OSV market. Maintain BUY with a TP of SGD0.61.
Source: OSK
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