LAST CLOSE: S$0.870
FAIR VALUE: S$1.22
Previous: S$1.22
New orders for new Vietnamese oilfields
Technics was awarded a S$32m EPCC contract for 2 wellhead satellite platforms (WSP) for VietSovPetro (VSP), due for delivery in Jun 2012. The two WSPs have a design capacity of 42,000bpd each. Technics will be responsible for the engineering, project management, procurement, fabrication, supervision of installation and hook up, onshore and offshore commissioning of topside modules for the two platforms.
This order comes hot on the heels of another recent S$8.5m order for two modules—a structural module for compressors and an FPSO power generation module.
High-margin EPCC contracts: This new order, similar to previous WSPs for the White Tiger and Dragon oilfields, will allow Technics to save on engineering and design costs and thus maintain its high margins. We continue to forecast gross margins of 37% in FY12F.
Not ruling out possibly more orders for White Tiger, Dragon fields: VSP’s other major oilfields are the White Tiger and Dragon fields, for which Technics has previously delivered 13 similar WSPs. Given that development is still ongoing in these fields, we are not ruling out the possibility of more WSP order wins for FY12.
These are for new oilfields: The two WSPs are named GT-1 and MT-1, taking after the new Vietnamese oilfields Gau Trang (White Bear) and Meo Trang (White Cat). VSP discovered oil in these blocks in early/late August this year respectively. The rapid pace of development—discovery Aug 2011, WSPs Jun 2012, first oil (we expect) in Sep 2012—informs us that VSP is in a hurry to capitalize on the high oil price today and to boost its production level, which has fallen by more than half since its peak of 13.5m barrels in 2002.
No competitors for VSP contracts: Technics has enjoyed a monopoly for VSP contracts in the White Tiger and Dragon fields for the last 20 years. We view VSP’s decision to award the initial WSP contracts to Technics extremely positively—this could be the start of another longterm series of contracts.
Technics has clear advantages over potential rivals. First, its WSP design is proven by over a dozen functioning platforms over the last two decades. Second, it incurs no additional engineering and design costs, whereas competitors would need to spend additional millions, thus making it easy for Technics to undercut potential rivals. Third, their long relationship with VSP is in itself a major intangible economic asset. We believe that these are sufficient barriers to entry to deter competitors from this very-profitable business.
Upgrading FY11F EPS: During a recent visit to Technics’ plant, we noted a “small” FPSO module under construction, and other projects. Given the rapid order wins lately, we believe that management may speed up certain projects to accommodate the new orders. As such, we raise our FY11F PATMI to $20.6m, equivalent to an EPS of 10.1c. For 9M2011, PATMI was already $16.1m, with 3Q PATMI at $7.5m. As such, our PATMI target requires only a $4.4m result in 4Q, which we believe is achievable.
8c dividends next year, still trading cum-dividend for 11c in 12 months: We forecast an 8c dividend next year. However, since the recent 3c declared (meeting our 12c forecast for the year, no dividend expected 4Q2011) has not been distributed, investors stand to earn 11c, translating into a 12-month dividend yield of 12.6% at the current share price.
Given the uncertain market conditions, we leave our fair value at $1.22. A good high-dividend stock has gotten cheaper in recent months, simply tracking the overall market (in fact, there was relative outperformance). Technics’ fundamental position is strong, operations are smooth, and the order win momentum is being maintained. BUY.
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