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STX OSV - Downgrade on stake sale risk

Shared By Stock Fanatic on Thursday, November 15, 2012 | 15.11.12

SOH delivered a decent 3Q, achieving a 13.6% EBITDA margin despite the drag from its Brazilian operations. However, we are turning cautious on the company on stake sale risk. We believe that a deal could be transacted in the near future at current market prices.

At 21% of our FY12 (9M at 71%), 3Q was broadly in line with both our and consensus expectations. We expect a stronger 4Q.We trim our FY12 EPS by 2% as we dampen margins. Though our view on the industry and the company is largely unchanged, we downgrade the stock to Neutral on stake sale risk. We also shave our target price, now based on blended valuations (previously 11x CY13 P/E).

An ‘OK’ quarter
3Q was an ‘OK’ quarter, in our view. Revenue dropped 27% yoy as the group delivered eight vessels (little revenue is recognised during the tail-end stage of construction). SOH also achieved 13.6% EBITDA margin, within our expectation. Performance has been slightly impacted by project delays in the existing Brazil yard (five more vessels to be delivered).

Mid-cycle order intake
SOH secured orders for two vessels worth NOK0.9bn in 3Q, bringing its 9M order intake to NOK8.3bn. Another two orders were secured for Siem Offshore since end-3Q, bringing YTD wins to est. NOK9.4bn vs. our FY12 order target of NOK10bn. In our view, the order intake is representative of a mid-cycle industry, still faced with financing challenges and pockets of over-tonnage. 

Indeed, management sees low order entries for its two core products, AHTS (erratic North Sea market) and PSVs (many coming on stream). Instead, SOH expects subsea to continue to drive industry orders. Lastly, as order intake is lagging recognition rate, management flagged that yards could experienced some under-utilisation in 2013.

Stake sale risk
Expecting selling price to be at current levels, we downgrade SOH to Neutral (see overleaf for further details). We would revisit the stock upon greater certainty of its shareholding structure. (Read Report)

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Source : CIMB Research

Posted on Thursday, November 15, 2012 | 15.11.12

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