UNDERPERFORM Maintained
S$0.15 Target: S$0.17
Mkt.Cap: S$276m/US$228m
Offshore & Marine
• Below, maintain Underperform. Excluding fair-value changes from hedges and forex gains, 2Q11 core net loss of S$36.3m (vs. core net profit of S$37m in 2Q10) was larger than consensus and our expectations. All operating segments underperformed. We now expect Otto to post a core net loss of S$16.8m for FY11 (vs. our earlier forecast of S$34.3m core net profit). With limited shipbuilding orders visibility, we also slash our FY12-13 earnings estimates by 75-85%. Our target price is reduced from S$0.19 to S$0.17, still based on 0.8x CY11 P/BV. Despite a 60% fall in its share price YTD, our rating remains an UNDERPERFORM due to i) concerns over the viability of the cancelled Mosvold orders, ii) heightened financial risks, iii) the dry spell in shipbuilding orders and iv) consensus estimates downgrade. De-rating catalysts include weaker-thanexpected contributions from charter and specialised offshore services.
• Underperforming in all segments. The weak 2Q11 results were mainly caused by: i) the larger-than-expected reversal of profits owing to two cancelled Mosvold vessels (S$22m-24m); ii) successive seismic division losses of S$2.2m from increased mobilization and iii) lower charter profitability due to lower utilisation from an over-expanded fleet. Shipbuilding continued to strain the balance sheet, with its S$95.8m of operating cash outflow in 1H. Consequently, net gearing deteriorated to 1.5x (FY10: 1.0x).
• No excitement over proposed sale. Otto entered into a LOI (letter of intent) to sell its first cancelled Mosvold vessel (28,000 bhp AHTS) for US$90m. While the selling price appears to be attractive (our estimates were US$85m), there is a possibility that the vessel could be leased back. Hence, the proposed disposal may be nothing more than a sale-and-leaseback transaction. This is hardly inspiring, in our view.
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