MERMAID MARITIME PUBLIC CO LTD
DU4.SI
Mermaid Maritime - Downside limited at current levels
- 2Q16 profits above expectations on higher revenues and cost-cutting.
- Newbuild delivery dates deferred further.
- Net gearing remains low for now at 0.04x.
Upgrade from FULLY VALUED to HOLD on valuations.
- Since our last note, Mermaid’s share price has fallen ~10% and is currently trading close to our existing TP of S$0.09.
- While persistently low oil prices cloud the outlook for all offshore services players, we think Mermaid’s relatively stress-free balance sheet with only 0.04x net gearing, ability to profitably utilise key subsea vessels (Endurer, Challenger) and recent costcutting initiatives provide some comfort, and current 0.3x P/BV valuations look fair.
- The key risk remains the ability to take delivery of the three newbuild vessels on order, which have had their delivery dates deferred to end-2016/mid-2017, as Mermaid will need to secure financing for the c.US$400m remaining capex commitments amidst challenging market conditions.
- We may re-evaluate our call closer to year-end once we have better clarity on the financing situation.
2Q16 profits were above expectations; tweaking our full-year forecasts upwards.
- Mermaid reported US$7.8m in net profits for 2Q16, beating our earlier expectations of US$2.0m in profits.
- Gross margins trended up to 23% this quarter on the back of higher revenues due to work secured for some key DSV vessels and cost savings due to cold stacking of under utilised vessels and streamlining of crew expenses.
- Factoring in the recent contracts and lower cost assumptions, we now expect US$12m of profits in FY16 but breakeven profits in FY17; the lower FY17 profits mainly stem from lower share of profits from associates owing to sharp decline in day rates negotiated on the recent AOD rig contract extensions, as well as higher interest costs on borrowings required to fund the newbuild capex highlighted earlier.
Valuation
- We maintain our TP of S$0.09 (0.3x FY16F P/BV), but upgrade the stock to HOLD as the share price has hit our TP.
Key Risks to Our View
- Only a sharp spike in 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/
2016-08-16
DBS Vickers
SGX Stock
Analyst Report
0.090
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0.090
