Mermaid Maritime - DBS Research 2016-02-16: Losing its shine

Mermaid Maritime - DBS Research 2016-02-16: Losing its shine MERMAID MARITIME PUBLIC CO LTD DU4.SI 

Mermaid Maritime - Losing its shine 


Subsea revenues and profits likely to fall steeply in FY16/17. 

  • Mermaid’s subsea orderbook has declined sharply from a high of US$473m at end- FY14 to US$212m as of end-3Q15. 
  • Adopting a less aggressive stance amidst the oil price decline, management has decided to focus on fleet utilisation and to return three of its long-term chartered-in vessels early. 
  • Despite the fact that Mermaid serves the more resilient offshore maintenance market, weak order flows mean that subsea revenue and profit targets are now substantially lower. 
  • This will be further compounded by losses from the niche tender drilling segment, stemming from two off-hire tender rigs, and potential lack of contracts for the newbuild ones. 

AOD jack-up rig contribution vulnerable to rate cuts. 

  • Contributions from associate Asia Offshore Drilling (AOD) has been a key pillar of earnings since FY14, but as the charters for the 3 rigs come up for renewal in 2016, we are expecting steep cuts in day rates owing to the global glut in supply of rigs. 
  • Non-renewal of contracts cannot be ruled out, either. 

Asset impairments add to the gloom. 

  • Given the lack of subsea order wins and poor outlook for drilling rigs, we cut FY16 earnings estimate by 98% to breakeven levels and expect losses in FY17. 
  • Management has already guided for significant provisions for impairment of assets in FY15 and further provisions cannot be ruled out. 

Valuation: 

  • Our TP is revised down to S$0.09 (0.2x FY16F P/BV) on the back of lower earnings and a drop in book value following expected asset impairments. 
  • Investor sentiment in this space remains weak and we downgrade our call to FULLY VALUED. 

Key Risks to Our View: 

  • Only a sharp spike in the oil price – albeit unlikely in our view – could result in some respite from the gloom surrounding the offshore services industry currently. 



Suvro SARKAR DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-02-16
FULLY VALUED Downgrade BUY 0.09 Down 0.27


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