Mermaid Maritime - Solid results engenders confidence

• Strong subsea utilisation, cable-lay contribution and discount on chartered-in fleet lift profit by 19% y-o-y

• Revising FY15/16 revenues and earnings upward to account for stronger-than-expected performance

• Contract wins and M&A could provide catalysts

Maintain BUY with TP of S$0.27

Highlights
Revenues and profit up by 10% and 19% y-o-y respectively on strong contribution from the subsea segment. Revenues for 3Q15 registered at US$96.6m, buoyed by the subsea segment, which saw utilisation remain healthy at 80% this quarter compared to 73% in 3Q14 (third quarter is a seasonally strong quarter for subsea work) due to the chartered-in vessel Nusantara (ex-Windermere) now deployed on a project. Contribution from the now-profitable cablelaying business, posting ~US$21m in revenues for the quarter, also helped boost revenues. Operating margins on the subsea segment as a whole were robust, at ~24%, as Mermaid managed to negotiate 25% discounts on day rates for its chartered-in vessels. This bolstered profits to US$16.5m for the quarter despite a US$1.1m loss on the drilling segment, stemming from the two off-hire tender rigs being marketed for sale/work.

AOD jack-up rig contribution remains stable. Profits from associate Asia Offshore Drilling (“AOD”) remained stable at US$7.3m, with the three jack-up rigs achieving 97% utilisation rate for the quarter. The 10% reduction in operating day rates by Saudi Aramco has yet to be passed through to the bareboat charter level, hence the stable income from AOD; we are modeling a 10% drop in 4Q associate income to be conservative.

Technical Analysis
Daily Chart
Old tender rigs still in limbo but new rigs provide upside. The MTR-1 and MTR-2 tender rigs are both uncontracted; Mermaid continues to aggressively market them for sale. The MTR-1 tender rig remains an ‘Asset for Sale’, and is not incurring depreciation charges at the moment. Management had initially hoped to close a sale in 3Q15 for this rig, but that has not materialised. MTR-2 incurs a depreciation charge of US$1+m per quarter, which is driving the loss at the drilling segment. Meanwhile MTR-3 and MTR-4 – state-of-the-art tender rigs that will be the most advanced in the market – are still scheduled to be delivered in 2016 and hold promise as a growth driver despite no news of a secured contract yet. (Read Report)

Source : DBS Group Research

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