MERMAID MARITIME PUBLIC CO LTD
DU4.SI
Mermaid Maritime - In a sweet spot
- With its subsea vessels gainfully employed in the Middle East, MMT’s 3Q15 core net profit of US$15.9m was above our and consensus’s expectations.
- Targeting US$12m cost savings in 2016, which we have not fully taken into account.
- Increase FY15 core EPS by 10% to factor the earnings beat. Expect qoq weaker results as seasonal demand comes down and conservatism creeps in.
■ 3Q15 represents MMT’s best ever quarter.
- Good results underline our Add call. 3Q15: in a sweet spot At 70% of our FY15 EPS (9M at 65%), we consider MMT’s 3Q15 core net profit of US$15.9m (+22% yoy; +9% qoq) to be ahead of our and consensus’s expectations. The beat came from better subsea utilisation.
- We estimate that subsea achieved utilisation is in the low-80s (2Q15: 74%), as MMT has successfully deployed its vessels in the Middle East, where activities are still high.
- There were no contributions from drilling as MTR-1 and -2 are cold-stacked.
- MMT has a healthy net gearing of 0.1x (FY15F: 0.1x).
■ 10% reduction in AOD’s day rates has not been reflected
- Owing to the structure of the contract, we note that the 10% reduction in AOD’s day rates has not sieved through the P&L.
- MMT concedes that it is only a matter of time before the reduction is reflected.
- In our earnings model, our associates’ contributions have factored in the 10% cut since Apr 15.
- Also, we now do not expect day rates to revert to the original US$180k/d in end-Mar 16, when the 1-year cut ends.
- We expect 3AOD to re-contract its jack-ups at c.US$160k/d, a 10% discount to US$180k/d.
■ EBITDA margins propped up by lower depreciation charges
- We note that EBITDA margins are propped up by lower depreciation charges. Depreciation for MTR-2 and Mermaid Siam has ceased, as the two vessels have been re-classified as held-for-sale at the start of 2015. However, there is a likelihood that both units might not be sold this year due to the tougher climate.
- Conservatively, our depreciation expenses have factored in the c.US$3m p.a. charge, should the vessels be reinstated as PPE. This partially explains why we are expecting a weaker 4Q15.
■ Targeting US$12m cost savings in 2016
- MMT is targeting to reduce its workforce by 15%, mainly through the release of its operating drilling team (US$6m cost savings) and the withdrawal of onsite shipyard supervision of its newbuilds in China (US$6m).
- We also understand that the company has successfully negotiated the return of chartered-in Windermere in Dec, which will reduce fixed costs. The charter-in cost for the vessel was US$15m p.a. Our forecasts have not taken into account the full scale of the cost-savings.
■ Conservatively shave our FY16-17 EPS by 11-13%
- Looking ahead, there are many moving parts for the stock, in terms of whether MMT will eventually take delivery of the newbuilds as well as subsea volatility.
- 2015 has been a decent year for subsea IMR but the sub-segment could feel the lagging effects of the oil tumult, as a substantial number of DSVs globally could come off-hire together in end-15. For this reason, we conservatively shave our FY16-17 EPS by 11-13%.
■ Good results underline our Add rating
- Nonetheless, 3Q15 represents MMT’s best ever quarter and the stock is the only one in our coverage to beat expectations during this reporting season.
- We maintain our Add rating with a higher target price (S$0.23), now based on 0.4x CY16 P/BV (0.4x CY15 P/BV previously), as we roll over our valuation to end-16.
YEO Zhi Bin
CIMB Securities
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http://research.itradecimb.com/
2015-11-16
CIMB Securities
SGX Stock
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