STX OSV (DMG)

STX OSV: Secured two newbuild orders valued at US$139m (BUY, S$1.21, TP S$1.89)

Newbuild order win gathering pace; re-iterate BUY. STX OSV has secured new contracts for two newbuild platform supply vessels (PSV) for NOK750m (US$139m/S$171m) from Island Offshore. This lifted their YTD vessel order wins to ten vessels (1Q11: three vessels; 2Q11: seven vessels) with an estimated value of NOK3.6b. We estimate that backlog order book is now at NOK17.5b, which is nearly 1.5x book-to-bill ratio. No changes to our EPS estimates as we have factored in NOK12b new orders in FY11. We remain positive on STX OSV: (1) order enquiries have improved and we believe pace of order win will gather pace in 2H11; (2) STX OSV is well positioned to secure orders for high-end offshore support vessels (OSV) given its market-leading position and strong customer relationships; (3) Stock valuation is undemanding at 7x FY11 P/E.

External vessel design but design is proven. The two Roll Royce’s UT 776 CD designed vessels are expected to be delivered in 1Q13 and 3Q13. The hulls of the vessels will be constructed at the STX OSV Braila yard in Romania and the vessels will be delivered from the STX OSV Brevik yard in Norway. Although the design is not STX OSV’s own design, the UT 776 CD is a proven design and the company has delivered the same design for its clients in the past.

Contract for the second PSV subjected to certain conditions. STX OSV highlighted that the contract for the second vessel is subjected to certain conditions being fulfilled before 3Q11. No further details on the conditions were provided. We believe chances are high that the second contract will move ahead and the contract is likely to be booked in the order book in 3Q11 and not 2Q11.

Valuation: Maintain BUY with TP at S$1.89. Our TP is based on 11x FY11 P/E, 10% premium to our target P/E for small and medium OSV shipyards and ~30% discount to the big-cap rig builders.