CIMB Squawk Box...

STX OSV – Rising demand for rigs could keep yards busy

Keppel Corp hit the headlines again. It bagged another US$440m newbuild contract, this time from Ensco. The order is for two ultra-premium jackup rigs plus options for two more to be exercised by August 2011.
This led us pondering if rising demand for oil rigs could lead to increased demand for offshore support vessels.
Oil rigs require offshore support vessels for a variety of reasons – tugs to move rigs or heavy equipment/machinery, as a supplies vessel, anchor handling. Some offshore support vessels are even equipped with special equipment with fire fighting capabilities.
STX OSV builds Anchor Handling Tugs Supply (AHTS) vessels and Platform Supply Vessels (PSVs). AHTS vessels are multi function vessels, which can handle anchors for rigs, move or tug the rigs to their destinations as well as transport supplies/equipment. Platform Supply Vessels on the other hand can be considered as the transport trucks of the sea. Their main function is to transport supplies, machinery and equipment.
In our view, STX OSV could be a potential beneficiary from increasing oil rigs orders in recent times.
The stock is currently trading at 8.8x CY12 P/E, slightly above offshore support vessels peer historical 5-year forward average valuations. However, in view of its scale and strong order book outstanding (estimated S$4.2bn for FY2010), we argue that STX OSV should be trading at a premium to its peers, and should be trading closer to the valuation multiples of rigbuilders. We have an Outperform recommendation with TP of S$1.60, based on 11x CY12 P/E.
(Please see attached for Technical Analysis)

Support looks like at $1.20