STX OSV HOLDINGS - Another vessel contract secured (DMG)

BUY

Price S$0.895

Previous S$1.56

Target S$1.56

A new order win; world class OSV builder valued at sub-5x P/E. We view the latest contract win from Trom Offshore win positively: (1) total YTD 2011 order win is estimated at NOK5.7b, 60% of our FY11F new order forecast and management remains confident of meeting our targets; (2) outstanding order book is estimated at NOK16.8b, 1.4x annual revenue; (3) STX OSV has filled more than 50% of its vessel delivery capacity in 2013 and this provide strong topline visibility. Share price has fallen 34% in the past one month as investors fear a repeat of the global financial crisis. We continue to like STX OSV for its exposure to the deepwater vessel newbuild sector and attractive valuations. Share price is now trading at 4.4x FY12F P/E with net cash (excluding construction loans) of S$0.36 per share, after 5S¢ dividend payment on 20 Sept 2011. We maintain BUY on the stock.

New vessel to be delivered in 2013. Trom Offshore Supply, a privately owned OSV company based in Norway, has awarded STX OSV a contract for the design and construction of one platform supply vessel (PSV). The PSV08 vessel, a STX design, is scheduled for delivery in 1Q2013. The hull of the vessel will be built in STX OSV Bralia in Romania and towed to STX OSV Brevik in Norway for final outfitting. Based on previous orders of similar designs, we estimate the contract to be value at NOK300m. Trom has an existing order at STX’s yard in Norway for a PSV09 which will be delivered in 2012.

Speculation of parent company selling controlling stake? An independent M&A intelligence service reported that STX Group has retained two major brokers to sell its controlling stake in STX OSV. While the news is purely speculation at this point, we cannot rule out such a move. Although the recent share placement by STX Europe to Och-Ziff in Jul 2011 came with an agreement not to dispose any additional shares in STX OSV until 12 Nov 2012, we note that the agreement came certain limited exceptions, which were not revealed. From our observation, we think STX OSV is independent of the STX Group, and any potential sale would have minimal operational impact on the company. We see any weakness in its share price as an opportunity to accumulate.