BUY
FAIR VALUE: S$0.505
LAST DONE: S$0.370
Previous FV: S$0.505
Rapid growth in shipbuilding order book
Yesterday, MPM announced that it has secured a shipbuilding contract worth US$27m for two units of 5,400bhp AHTS. By our calculation, this brings the shipbuilding order book up to S$52.25m, comprising 80% of our projected shipbuilding revenues for FY12. Being only two weeks into FY12 for MPM, this gives us greater confidence that MPM will meet our revenue expectations.
The two AHTS vessels will contribute to MPM in two ways—i) during the shipbuilding process in shipbuilding revenues; and ii) after delivery, the 49% of the charter income will accrue to MPM via the ownership stake in its Indonesian associate PT BBR. In other words, we expect income from these vessels over the next five to seven years.
Further, MPM also has in hand a S$8.5m contract for ship upgrading to be performed through FY12.
In light of the booming Indonesian economy, the growing need for coal transportation and a vibrant offshore oil and gas scene, we continue to see potential for future orders for both tugs and barges and offshore support vessels for MPM from this market.
Third drydock likely complete ahead of schedule
In our initiation report, we highlighted that MPM was constructing its third and largest drydock, and that progress appeared to be well ahead of schedule. We estimate that this drydock should be complete now, a few months ahead of schedule. We expect additional ship repair and conversion income to accrue to MPM as early as 1Q 2012.
Estimates and valuations maintained
MPM’s order book augurs well for a strong FY12, and the early completion of the third drydock yields potential for upward revisions to earnings estimates. Pending the FY11 results announcement in mid-Nov, we leave our FV at $0.505 and continue to recommend a BUY.
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