MPM has secured a 26-month contract for MP Prelude, a 13-month contract for MP Premier, and a 100-day contract for newly-acquired MP Prevail. The implied charter rates for these contracts at USD2.03- 2.12/bhp/day are higher than previous rates of USD1.50/bhp/day, but within our expectations. We estimate these charters will yield >45% net margins and >64% asset ROEs, and provide good earnings visibility.
Maintain BUY with SGD0.55 TP
Proven 8,080 brake horsepower (bhp) anchor handling tug supply (AHTS) vessels MP Prelude and MP Premier secure extendable longterm charters. MP Prelude’s USD13m 26-month contract has an in-built 10-month extension option, while MP Premier has a secured 13-month USD6.8m contract. Both will work in tandem at the same locale to support the same end-customer. The rates work out to USD2.03/bhp/day and USD2.12/bhp/day, higher than the previous USD1.50/bhp/day rates.
Newly-acquired MP Prevail secures its maiden contract
MP Prevail is a 9,000bhp vessel that was purchased in mid-2013. We estimate that the vessel cost, including additional equipment onboard, was USD20m. As it has a lower bollard pull capability than MPM’s own newbuilds, MP Prevail has been marketed as an 8,080bhp series vessel. Thanks to the low purchase price, we expect a similar earnings profile as the MP Prelude and MP Premier.
Seven more 8,160bhp AHTS vessels to join fleet over FY14-15F
MPM will be growing its AHTS fleet, capitalising on the strong returns available to Indonesian vessels in the cabotage-protected offshore space. We understand the current planned delivery schedules are May 2014, Aug 2014, Jan 2015, March 2015, June 2015, July 2015, and Sept 2015. Vessel prices have jumped 15% since the start of 2013, following a >35% charter rate jump over the last 18 months.
Attractive stock valuations
MPM’s stock trades at 6.0x FY14F P/E and 0.76x P/BV, undervaluing its strong growth potential and high-margin businesses. We believe the weaker tug and barge fleet returns and lower yard utilisation have already been priced in. Maintain BUY with SGD0.55 TP based on 9x FY14F P/E.
Source : OSK/DMG Research