Offshore & Marine - CIMB Research 2016-06-03: Beauty is in the eye of the beholder

Offshore & Marine - CIMB Research 2016-06-03: Beauty is in the eye of the beholder Offshore & Marine EZION HOLDINGS LIMITED 5ME.SI  CSE GLOBAL LTD 544.SI 

Offshore & Marine - Beauty is in the eye of the beholder

  • Otto Marine, an unloved candidate could be the first in the O&M sector to be taken private after the recent privatisation trend in small caps in Singapore.
  • BakerTech, CSE, Mermaid Maritime, Dyna-Mac, POSH, ASL Marine, KrisEnergy, KS Energy, Marco Polo Marine and PACRA are the next potential candidates.


Otto Marine, a case of unloved candidate, trading at 0.17x P/BV

  • Small-cap shipyard/ship charterer, Otto Marine (OTML) announced that it has received an offer from a potential buyer for the shares in the company. The proposed buyer and offer price were not disclosed. It is 61.2%-owned by Mr. Yaw Chee Siew, a Malaysian tycoon. 
  • OTML has been reporting losses since 2011, hit by execution issues, weak vessel orders and charter rates and high leverage. The stock spiked 17% over the past week, which spurred a halt and the above announcement, in our view.

First stage: quantitative screening

  • The small-cap O&Ms are trading at an average of 0.4x CY15 P/BV. Our first stage of screening identifies stocks that are 
    1. trading at a trough, below -1 s.d. and -2 s.d. of P/BV, 
    2. have relatively decent balance sheets or 
    3. controlling shareholder has the financial muscle and desire to control the entire entities. 
  • Our quantitative screen uncovers these stocks as potential de-listing candidates: Baker Technology (BakerTech), CSE, Mermaid Maritime, Dyna-Mac and Pacc Offshore.

Quantitative screening for small-cap privatisation candidates

Beyond numbers

  • We look at qualitative aspects, including 
  1. highly valued businesses with potential for rebound if oil prices recover sharply, 
  2. quality management to keep the business going, 
  3. foreign-owned companies with incentive to be listed in Singapore or 
  4. major shareholders buying shares, signaling their intent. ASL Marine, KrisEnergy, KS Energy, Marco Polo Marine and Pacific Radiance (PACRA) meet these criteria.

Long shot calls

  • While OTML has found its white knight, the other downstream process modules and gas compression company, Technics Oil & Gas has applied to the Singapore High Court to be placed under judicial management, struggling with negative working capital, high borrowings and failure to meet its lease payments. 
  • Among the long shot calls, some of the unloved names that may have shortage of funds in addition to challenging earnings outlook are Ezra, Emas Offshore and Swiber.

CSE and EZI are our top picks among the small caps

  • Ignoring the privatisation noise, CSE and Ezion are our preferred small caps in the O&M sector. 
  • CSE is backed by net cash, a decent dividend yield of c.4% and a quality management team. 
  • Ezion is under-owned and a good proxy to ride on the oil price recovery. It is trading at 0.5x CY16 P/BV, below -1 s.d. of its 5-year mean.

Highlighted companies


CSE Global

  • ADD, TP S$0.52, S$0.42 close
  • CSE is backed by net cash, decent dividend yield of c.4% and quality management.

Ezion Holdings

  • ADD, TP S$0.63, S$0.55 close
  • Ezion is under-owned and a good proxy to ride on oil price recovery. It is trading at 0.5x CY16 P/BV, below -1 s.d. of its 5-year mean.


Peers Comparison


Offshore & Marine Peers Comparison



LIM Siew Khee CIMB Securities | http://research.itradecimb.com/ 2016-03-08
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.63 Same 0.63
ADD Maintain ADD 0.52 Same 0.52


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