Mermaid Maritime - DBS Research 2016-03-07: More pain ahead

MERMAID MARITIME PUBLIC CO LTD DU4.SI

Mermaid Maritime - More pain ahead

The Group incurred a loss of US$245m for the quarter as Mermaid booked a US$163m impairment charge on its assets and a US$65m share of impairment from associate Asia Offshore Drilling (AOD), suggesting a roughly 40% haircut on vessel/rig asset values.
Subsea vessel utilisation dipped to 56% in 4Q15, down from ~80% in the previous two quarters, a result of both a challenging subsea market and seasonal factors.

AOD also implemented a retrospective rate reduction (which was expected), leading to a US$9m loss from associate.

Revenues will take a hit from 2016 onwards as Mermaid returns its three long-term chartered-in vessels this year (two have already been returned; one is still on-hire until end-2016).
Orderbook levels also remain low, at US$255m, implying lesser jobs for the working vessels too.

Newbuild tender rigs MTR-3 and MTR- 4, and the DSV Mermaid Ausana – all scheduled for delivery by 2017 – remain without secured contracts, while the two old tender rigs are both cold stacked, having not found buyers yet.
Meanwhile, we think there is a risk of further rate cuts for the AOD jackup rigs, as their US$162k day rate is still 20-40% above recent fixture rates on similar rigs in the Middle East; in the worst case scenario, contracts may not be renewed.

We maintain our TP of S$0.09 (0.3x FY16F P/BV).
In line with downside risk to earnings for FY16/17 and a drop in book value following asset impairments, we retain our FULLY VALUED call on the counter as the order outlook remains challenging.

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/ 2016-03-07

FULLY VALUED Maintain FULLY VALUED 0.09 Same 0.09