STX OSV: Lower new order expectations; cut EPS and TP (DMG)

(BUY, S$1.15, TP S$1.56)

Customers could hold back orders due to volatile market conditions. STX OSV’s share price has declined 25% since end-Jul on rising concerns that volatile capital market conditions could delay customers’ newbuild programs. While we view the latest NOK750m contract win positively, we have reduced our new order wins for FY11-12F by 20-25% as we believe our previous estimates were too aggressive in view of the current environment. As a result, we cut our FY12-13F EPS by 8% and TP to S$1.56 (old: S$2.00). Our new TP is based on a lower FY12F P/E of 7.7x (old: 9.1x), 30% discount to big-cap rig builders. We continue to like STX OSV for its exposure to the deepwater space. Maintain BUY with 36% upside from its last closing price.

First new order announcement in 3Q11. STX OSV announced that they have secured new contracts for the design and construction of three advanced stern trawlers for Aker Seafoods for around NOK750m. The vessels are expected to be delivered in 2Q13 and 1Q14. The vessels will be built based on STX OSV’s own FV 01 design. With the latest win, we estimate that YTD 2011 order win has reached NOK5.4b and outstanding order book is estimated at NOK16.5b.

Cut order win forecasts by 20-25%; lower FY12-13F EPS by 8%. STX OSV recorded NOK3.1b new orders in 2Q11 but only managed to secure NOK1.1b in the current quarter (include one vessel from Island Offshore). In view of the current market conditions, we think customers could delay some of their newbuild programs. Hence, we reduce our FY11-12F new order forecasts by 20-25% to NOK9b and NOK12b respectively. We maintain FY11F EPS but lower FY12-13F by 8% due to the changes in new order assumptions. We expect the NOK3b Transpetro orders for eight LPG carriers to be made effective by end of the year.