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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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
