MERMAID MARITIME PUBLIC CO LTD
DU4.SI
Steadying the ship
- Mermaid more or less broke even in 1H15 with a marginal core net loss of US$1.2m, which we consider to be slightly ahead of our expectations and above consensus. Its subsea performance was impressive in 2Q15, with a 77% yoy jump in net profit to US$11.7m and leading to breakeven as 1Q’s net profit loss of US$16m was erased.
- We lift our FY15-17 EPS by 2-6% on stronger subsea revenues. Given its successful navigation of stormy waters, we upgrade Mermaid to Add from Hold, with a lower target price (S$0.22), at 0.4x CY15 P/BV vs. FY16 5% ROE.
- Potential catalysts include longer-term subsea contracts, contracts for its newbuild tender rigs and better earnings.
2Q15: subsea impressive
- Subsea achieved a fleet utilisation of 74% in 2Q15 vs. 33% in 1Q15 and 71% in 2Q14. The three highest earning vessels (Mermaid Asiana, Commander and Endurer) resumed service after their respective dry dock programme in 1Q.
- In addition, 2Q15 is the seasonally-strongest quarter for Mermaid. The higher utilisation led to a 51% yoy jump in subsea revenue to US$108m. Subsea profits grew proportionally more than revenue growth at 77% due to the high operating leverage effect.
- Profits for the newly-minted cable-laying business (makes up 24% of 1H15 subsea revenue) also improved with better execution post a steep learning curve.
- Lastly, margins were helped by a short deployment of the chartered-in vessel, Windermere, which subsequently went into dry dock (Mermaid does not need to pay for the charter-in costs during this period).
- We are expecting a profitable 2H, with the key vessels securing short-term jobs.
Update on tender rigs
- With both MTR-1 and MTR-2 cold-stacked in Singapore, the tender rigs made an EBIT loss of US$3.1m in 2Q15. The loss was larger vs. 1Q15 as MTR-2 was reclassified from asset-for-sale to fixed asset, resulting in an additional US$1.5m depreciation charge. Recall that MTR-1 and 2 had prospective buyers in 1Q and were re-classified as assets-for-sale, which exempted them from depreciation.
- We understand that MTR-1 could be sold in 3Q at book. Meanwhile, Mermaid is not delaying the deliveries of MTR-3 and 4 (due for delivery in 1Q16 and 2Q16, respectively) as it is confident of deploying them.
AOD takes 10% rate reduction
- AOD has taken a 10% rate reduction for Apr to Mar 16. Day rates for this period drop to US$162,000 before reverting to normal rates of US$180,000 post Mar 16.
- We model in the rate reduction, although we note that 2Q15 results do not reflect the lower day rates.
YEO Zhi Bin | http://research.itradecimb.com/ CIMB Securities 2015-08-17
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