(BUY, S$1.20, TP S$1.89)
First orders for anchor handling vessels since global financial crisis. STX OSV secured contracts for two multi-functional deepwater anchor handling/ offshore service vessels from Farstad valued at NOK1.2b (S$270m). The new orders lifted YTD order wins to NOK4.8b, 40% of our FY11 order forecast. We believe the latest contracts for anchor handling vessels are the first orders for such vessel in the past 18 months. Order momentum is building up – three shipbuilding contracts in 1Q11 vs. nine announced in 2Q11. We maintain EPS estimates and TP at S$1.89 based on 11x FY11 P/E. Stock is now trading at 7x FY11 core P/E with 4.6% yield. Maintain BUY.
Repeat orders to be delivered from Romania/Norway. The vessels for Farstad (an Oslo-listed vessel owner) will be based on Rolls Royce’s UT 731 CD design and will be delivered from STX OSV Langsten in Norway in 2Q13. The hulls will be delivered from STX OSV Tulcea In Romania. The implied contract value for each vessel is US$110m. We believe execution for the Rolls Royce design is not a concern given STX OSV has delivered four such vessels to Farstad in the past. Total number of vessels to be delivered in 2013 has increased from six as of end-1Q11 to 12 vessels now. Note that STX OSV has the capacity to deliver 24-25 vessels per annum. We believe order momentum will continue to be strong as STX OSV looks to fill its order book for deliveries in 2013.
Valuation: S$1.89 TP based on 11x FY11 P/E; re-iterate BUY. Our target P/E for STX OSV is 10% premium to our target P/E for small and medium OSV shipyards and 30-40% discount to current valuation of big-cap shipyards. We expect +12% EPS CAGR over FY10-13F mainly driven by higher topline while expecting EBITDA margin of 11.0-11.5% (1Q11:13.8%).
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