bishan22 I recalled U ever sold at 1.25....still got a lot to sell at 1.36..are'nt U holding for long term.JP Morgan Target $2
27 June 2011
STX OSV Holdings Ltd.
Initiation
Overweight
STXO.SI, SOH SP
An " OSV" leader amongst the crowd likely beneficiary
of next leg of " offshore" capex?
Price: S$1.30
Price Target: S$2.00
Singapore
Ship Building & Repairs
Ajay Mirchandani AC
(65) 6882-2419
ajay.mirchandani@jpmorgan.comJ.P. Morgan Securities Singapore Private
Limited
YTD 1m 3m 12m
Abs 10.2% 7.4% 13.0% 64.6%
Rel 16.0% 10.2% 13.3% 58.4%
STX OSV Holdings Ltd. (Reuters: STXO.SI, Bloomberg: SOH SP)
Nkr in mn, year-end Dec FY09A FY10A FY11E FY12E FY13E
Revenue (Nkr mn) 11,895 11,881 12,388 12,951 14,116
Operating Profit (Nkr mn) 525 1,206 1,431 1,503 1,496
EBIT Margin 4.4% 10.2% 11.6% 11.6% 10.6%
Net profit (reported) (Nkr mn) 95 1,031 992 1,047 1,048
Net Profit (rec) (Nkr mn) 95 797 992 1,047 1,048
Recurring profit growth -162.1% 739.2% 24.5% 5.6% 0.1%
EPS (Nkr) 95.00 0.87 0.84 0.89 0.89
Attributable Equity (Nkr mn) 1,015 2,378 3,072 3,805 4,538
P/E (Recurring) nm 8.5 6.9 6.5 6.5
P/BV (x) nm 2.9 2.2 1.8 1.5
Dividend Yield nm 0.0% 4.4% 4.6% 4.6%
ROE 10.5% 60.8% 36.4% 30.5% 25.1%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data
Shares O/S (mn) 1,180
Market cap (S$ mn) 1,534
Market cap ($ mn) 1,238.50
Price (S$) 1.30
Date Of Price 27 Jun 11
Free float (%) 26.8%
3mth Avg daily volume 6.49
3M - Average daily Value (S$
mn)
7.85
FTSTI 3,067
Exchange Rate 1.24
See page 48 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
0.7
0.9
1.1
1.3
S$
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11
Price Performance
STXO.SI share price (S$)
FTSTI (rebased)
Initiate with Overweight June-2012 SOTP-based PT of S$2, 54%
upside: STX OSV Holdings, (net orderbook of ~US$2.7 bn as of 1Q11)
is one of the major global high-end designers and developers of OSVs
(Offshore support vessels), used in the offshore oil and gas E& P and oil
services industries. The company's core products and services include (i)
Complex and highly customized OSVs (AHTS, PSVs and offshore
construction vessels), (ii) Others (icebreakers, coast guards) and (iii)
vessel design and power and automation solutions
Best positioned to benefit from return of " potential” OSV capex
cycle STX OSV’s Brazil yard provides “long term” upside option:
With 60-70 “newbuild” rigs orders since 4Q10, we believe the “next leg
of offshore" orders are likely to come from OSV segment (more
concentrated in PSVs, OSCVs in our view) given (i) “rule of thumb" of
2-4 OSVs per rig deployed and (ii) shorter delivery times (16-24 months
for OSVs versus 30-36 months for rigs). We see STX OSV as key
beneficiary. Moreover with its Brazil presence, it remains well
positioned from order momentum in most key “offshore” markets.
Operating Margins to surprise on the upside in FY11E / 12E While
STX OSV’s legacy (loss making orders -- now been delivered) orders
(AH Series, Bramax – chemical tankers) negatively impacted its margins
in 2007-2009, we believe we are likely to see rising margin trend for
STX OSV over period 2011-2012 (and likely to beat consensus estimates
by 1.5-2% pp) on back of (i) improved delivery trends (leads to reversal
of contingencies), (ii) rising % of “internal design” vessels (up from 45%
in 2007 to 76% in 2010) and (iii) higher efficiencies and labor savings.
Compelling ‘valuations’: STX OSV is trading at compelling valuations
with a steep discount to its Singapore peers (trades at 6.9x FY11E PE
versus Singapore yards at 14-16x). Key risks to its PT include: (1) steep
fall in oil prices, (2) order cancellations and (3) execution risk
2
Asia Pacific Equity Research
27 June 2011
Ajay Mirchandani
(65) 6882-2419
ajay.mirchandani@jpmorgan.comCompany Description P& L sensitivity metrics (2011E) EBITDA EPS
impact (%) impact (%)
STX OSV Holdings, a wholly owned subsidiary of
STX Europe (previously known as Aker Yards), is
one of the major global high-end designers and
developers of OSVs (Offshore support vessels),
used in the offshore oil and gas exploration and
production and oil services industries. It's core
products and services include Complex and highly
customized OSVs (Anchor handling tug supply
vessel, platform supply vessels, offshore subsea
construction).
Revenue Assumption 12,388 12,388
Impact of additional 5% 5% 5%
EBIT margin assumption 11.6% 11.6%
Impact of each 1% 8.0% 8.5%
Source: J.P. Morgan estimates
Price target and valuation analysis
Our price target is based on sum-of the-parts of the individual business
segments namely Offshore & specialized vessels and its other business. We
value the Offshore & specialized vessels business based on DCF valuation of
existing orderbook at WACC of 10% with Annual order assumptions of
NOK15 billion (US$2.7 bn) value the net cash (excluding customer
advances) and taking a “20%” haircut on construction receivables to remain
on ‘conservative’ side. We also discount cumulative capex of NOk 1 bn over
the next tow years
FY09A Revenue breakdown chart
Our SOTP price target of S$2.0 equates to 10.6x / 10.0x FY11E/ FY12E
earnings and 3.4x / 2.8x FY11E / FY12E book. Key risks to price target
include: (1) steep fall in oil prices, (2) order cancellations and (3) execution
Source: Company reports. risk
EPS: J.P. Morgan vs consensus
J.P. Morgan Consensus
FY11E 0.84 0.78
FY12E 0.89 0.79
Source: Bloomberg, J.P. Morgan estimates
Valuation table for key comparables
Company Mkt Cap P/E (x) P/B (X) Dividend Yield (%) ROE (%) Net Gearing (%)
(U$ mm) 10A 11E 12E 10A 11E 12E 10A 11E 12E 10A 11E 12E 10A 11E 12E
Singapore
STX 1,236 6.6x 6.9x 6.5x 2.9x 2.2x 1.8x 2.3% 4.4% 4.6% 60.8% 36.4% 30.5% 77% 72% 53%
Keppel Corp 15,353 13.3x 13.6x 13.1x 2.8x 2.6x 2.4x 3.9% 3.9% 3.9% 22.3% 19.8% 18.8% Net Cash Net Cash Net Cash
SMM 8,867 13.6x 16.1x 14.6x 4.2x 4.1x 3.9x 6.8% 5.4% 6.0% 38.4% 26.3% 28.1% Net Cash Net Cash Net Cash
Korea
Daewoo 7,806 10.7x 10.5x 11.9x 2.1x 1.8x 1.6x 1.1% 1.2% 1.1% 21.4% 18.4% 14.2% 49.4% 21.4% 11.4%
Hyundai HI 30,260 7.0x 8.4x 8.8x 1.9x 1.8x 1.5x 1.6% 1.5% 1.4% 31.8% 24.7% 19.5% 20.4% 5.8% Net Cash
Samsung HI 9,639 11.0x 11.4x 12.2x 2.6x 2.3x 2.0x 1.1% 1.1% 1.1% 26.7% 21.5% 16.8% 34.7% 15.2% Net Cash
China
Cosco Corp 3,481 18.5x 16.0x 14.6x 3.6x 2.9x 2.5x 1.6% 0.0% 0.0% 21.8% 22.5% 20.1% 7.0% Net Cash Net Cash
Yanzijiang 4,512 9.5x 8.5x 8.2x 2.9x 2.4x 2.0x 3.1% 2.7% 2.8% 36.4% 29.4% 24.8% Net Cash Net Cash Net Cash
Rongsheng 3,820 14.4x 5.7x 5.1x 1.8x 1.4x 1.1x 1.9% 1.8% 2.0% 23.4% 27.5% 24.3% 22.0% 29.0% 13.7%
Malaysia
Kencana 1,694 26.3x 23.7x 19.1x 6.2x 4.5x 3.5x 0.2% 0.6% 17% 23.0% 22.1% 20.6% 3.9% 3.8% 0.5%
MMHE 4,315 39.5x 29.3x 28.7x 9.2x 5.7x 5.0x 0.0% 0.7% 0.7% 26.4% 25.8% 18.5% Net Cash Net Cash Net Cash
Average 15.5x 13.6x 13.0x 3.7x 2.9x 2.5x 2.1% 2.1% 3.7% 30.2% 24.9% 21.5% 21.4% 14.2% 8.4%
Source: J.P. Morgan estimates (Keppel, SMM, COSCO, MMHE, Rongsheng), Bloomberg consensus estimates [for others]. “” Kencana year end is July. Priced as of 27 June 2011.
AHTS
43%
PSV
17%
OSCV
29%
Other
vessels
3%
Others *
8%
3
Asia Pacific Equity Research
27 June 2011
Ajay Mirchandani
(65) 6882-2419
ajay.mirchandani@jpmorgan.comTable of Contents
Investment Summary ...............................................................4
Key Investment Risks ..............................................................6
Valuation Comparables............................................................8
Financial Assessment............................................................14
Order-book analysis...............................................................18
Financial Assessment............................................................20
Company overview.................................................................24
Sector overview : Offshore Support vessel .........................35
4
Asia Pacific Equity Research
27 June 2011
Ajay Mirchandani
(65) 6882-2419
ajay.mirchandani@jpmorgan.comInvestment Summary
STX OSV Holdings, (previously part of Aker Yards), is one of the major global
high-end designers and developers of OSVs (Offshore support vessels), used in the
offshore oil and gas E& P and oil services industries. The company's core products
and services include (i) Complex and highly customized OSVs (Anchor handling
tug supply vessel, platform supply vessels, offshore construction vessels), (ii) Other
vessels (LNG-powered ferries, coast guard vessels, Icebreakers and seismic vessels)
and (iii) Vessel design and power and automation solutions
Leading builder in high-spec OSVs alternate 'offshore’ play
STX OSV likely to be “key beneficiary” when “offshore support” capex returns
Since the last quarter of 2010, we saw a surge in orders for new-build rigs (jack-ups
as well as deep water drillships). However we are yet to see any significant order
activity with the offshore support vessels (AHTS as well as PSVs although we have
see some strength in PSV ordering in recent months). Our discussion with various
industry experts suggests that as a " rule of thumb" every rig needs 2-3 OSVs. STX
OSV remains the ‘ideal’ play on this “potential” offshore capex theme given its
leading market position, long history in the business and strong client relationship.
Figure 2: Annual " new-build" rig orders(no. of rigs)
Source: Riglogix, JPMorgan Research
Figure 3: Annual " new-build" OSV orders (no. of vessels)
Source: Clarkson , J.P. Morgan Research
Margins likely to surprise on the upside for 2011-2012
While STX OSV’s legacy (loss making orders -- now been delivered) orders (AH
Series, Bramax – chemical tankers) negatively impacted its margins in 2007-2010,
we believe we are likely to see rising margin trend for STX OSV over period 2011-
2012 (and likely to beat consensus estimates) on back of (i) improved delivery, (ii)
rising share of “internal design” vessels, (iii) higher efficiencies and labor savings.
Figure 4:STX OSV : JPM v/s consensus (%)
Source: Bloomberg, J.P. Morgan estimates
Figure 5: STX OSV: Order backlog breakup
by internal v/s party
Source: Company, J.P. Morgan estimates
Figure 6: Op Margins v/s Deliveries of internal
design
Source: Company, J.P. Morgan estimates
34 23 31 21
2
19 27
11 20 11
11
1
1
2
2 10 16
21
0
5
27
0
10
20
30
40
50
60
70 Jackups Semisubs Drillships
145
332 378
177 160 74 13
115
175
176
106 66
104 36
0
100
200
300
400
500
600
2005 2006 2007 2008 2009 2010 2011 -
YTD
AHTS PSV
12.6%
11.1% 11.6%
10.0%
12.8%
10.8% 11.6%
9.4%
0%
2%
4%
6%
8%
10%
12%
14%
EBITDA margin EBIT margin
JPM-2011E Consensus-2011E JPM - 2012E Consensus-2012E
78 57 43 49
45%
60%
77%
76%
0%
20%
40%
60%
80%
100%
0
20
40
60
80
100
FY07 FY08 FY09 FY10
Internal design orders
3rd party design orders
Internal design as % of total orders
2.5%
5.3%
6.1% 7.5%
9.7%
5.9%
17.1%
10.5%
12.8%
0%
5%
10%
15%
20%
0%
20%
40%
60%
80%
100%
120%
FY08 1H09 3Q09 4Q09 1H10 1Q10 2Q10 3Q10 4Q10 1Q11
Operating Margins (%)
Total Deliveries based on " internal design" vessels (%)
Figure 1: STX OSV market share
and rank in major OSV segments
% share, rank (As of 31 Dec 2010 for
AHTS and PSV and 31 Aug 2010 for
OSCV)
Source: RS Platou, Company prospectus. Note: *
OSCV includes saturation diving support vessels,
pipe-laying support vessels, and remote operated
vehicle support vessels.
36.4%
24.7%
6.6%
# 1
# 1
# 2
0.0%
10.0%
20.0%
30.0%
40.0%
AHTS (> 20K
BHP)
PSV (> 4,500
DWT)
OSCV *
5
Asia Pacific Equity Research
27 June 2011
Ajay Mirchandani
(65) 6882-2419
ajay.mirchandani@jpmorgan.comDon’t underestimate its Brazil presence
STX OSV is one of few “leading international yards" with an “existing” Brazil
presence (besides Keppel with its 100% owned BrasFels and Samsung Heavy's 10%
stake in Atlantico Sul). Presence in Brazil becomes increasingly important as
Petrobras increases “local content needs” and PBR accounting for over 50% of
global deepwater capex.
STX OSV initiated its Brazil shipyard operations in 2001 (current ‘annual’ capacity
of 3-4 vessels) and is now planning to establish a new shipyard in Brazil in order to
meet the increased demand for building more complex vessels in the country.
As a result, on 20 May 2010, STX signed a JV agreement with its Brazilian partner,
PJMR, to jointly invest US$100 million in this new yard over a period of three years.
This yard, the construction of which is expected to complete by December 2013, will
be located in the municipality of Ipojuca in the state of Pernambuco, has a size of
800,000 sq m and an estimated steel processing capacity of up to 20,000 tons / year.
With this new yard, the combined capacity of both the yards in Brazil is
expected to increase by additional four to five larger vessels (15,000 to 20,000
tons hull weight per year). To support this new yard expansion, STX OSV had
secured contracts for eight LPG carriers with an aggregate value of US$536.3 million
for delivery between 2013-2015.
Attractive Valuations steep discount to comparable peers
Compelling ‘valuations’: STX OSV is trading at compelling valuations with a steep
discount to its Singapore peers (STX OSV trades at 6.9x FY11E PE versus
Singapore yards at 14-16x).
Interestingly not only is it trading at a substantial discount to its listed peers, but only
trades at a fraction to its peers on multiple of market capitalization / orderbook. As
we can see in Figure 9, STX OSV is by far the cheapest name in the region based on
this specific multiple. However admittedly, this ratio should be adjusted for the
operating margins, STX OSV still is a stand out candidate even after adjusting for
this aspect.
Figure 8:STX OSV versus Singapore listed yards : P/E , P/B
x
Source: J.P. Morgan Research
Figure 9: STX OSV versus regional yards : Market Cap / Orderbook
x
Source: J.P. Morgan estimates
6.9
13.6
16.1
2.2 2.6
4.1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
STX OSV Keppel SMM
PE - FY11E P/B - FY11E
0.41 0.59 0.85
1.70
2.06
4.31
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
STX OSV Cosco YZJ Keppel SMM MMHE
Figure 7: STX OSV: Brazil offshore
support vessels market share
%
Source: Prospectus
STX
OSV,
45%
Wilso
n
Guaru
ja ,
25%
Alianc
a,
20%
TWB,
5%
Navsh
ip, 5%
6
Asia Pacific Equity Research
27 June 2011
Ajay Mirchandani
(65) 6882-2419
ajay.mirchandani@jpmorgan.comKey Investment Risks
Impending “potential” stake sale remains a key overhang
News reports (source: Reuters) highlighted in April 2011 that STX OSV’s parent,
STX Group is considering selling an additional 20% stake in Singapore listed STX
OSV. Post this news report, we have seen STX OSV share price remain range bound.
Muted outlook for AHTS “new-build” market in near term
While admittedly our discussion with various industry experts suggests that as a " rule
of thumb" 2-4 OSVs for every rig deployed, near term demand dynamics (especially
for the AHTS market) remains muted. While spot rates remain on lower end, new
orders (within high specification segment that STX OSV operates in) have been few.
Figure 10: New Orders and delivery for AHTS> 16,000 bhp
no. of vessels
Source: Clarksons, Offshore Intelligence Weekly, Dec. 2010
Figure 11: North Sea AHTS(18,000+ BHP) spot data rates
£/Day
Source: Clarksons, Updated as June 2011
Moreover as we can see in chart below, with high specification AHTS concentration
highest in North Sea, demand likely to remain muted in near term.
Aging fleet but mainly within the “low end” vessels
Given that STX OSV operates within the “high-end” OSV market, we believe
looking at aging profile as well as OB/Fleet of the overall OSV market is misleading.
Based on our analysis, while 42.5% of global AHTS as well as PSVs are over 25
years old, on closer analysis, we see that the " old fleet" is largely concentrated in the
" low-end" or " smaller sized vessels where-in STX OSV does not operate
in.Moreover the Orderbook / Fleet of the high vessels (large PSVs as well as large
AHTS) is much higher than the segment's average.
Figure 13: Aging profile of AHTS> 8,000 bhp (no. of vessels)
Source: Clarksons, Offshore Intelligence Weekly, Dec. 2010
Figure 14: Aging profile of PSV> 3,000 dwt (no. of vessels)
Source: Clarksons, Offshore Intelligence Weekly, Dec. 2010
11
5 4 7
13 10
19
29
3 5
17
30
57
15
1 4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
10
20
30
40
50
60
2003
2004
2005
2006
2007
2008
2009
2010*
Deliveries New Orders New Orders/Deliveries
0.00
20,000.00
40,000.00
60,000.00
80,000.00
100,000.00
120,000.00
1997-03
1998-10
2000-05
2001-12
2003-07
2005-02
2006-09
2008-04
2009-11
2011-06
North Sea AHTS Spot Day Rates- 18,000+ BHP
> 25 years,
151, 25%
20-25 years,
10-20 years, 28, 4%
5-10 90, 15%
years,
83, 14%
less than 5
years, 255,
42%
> 25 years, 11,
2%
20-25 years,
8, 2%
10-20
years, 78,
16%
5-10 years,
138, 28%
less than 5
years, 258,
52%
Figure 12No. of high specification
AHTS per deep water rigs
Source: Farstad, J.P. Morgan Research
3.0
0.8
7.1
2.2
2.2
6.0
0.0 2.0 4.0 6.0 8.0
Global
US GOM
North Sea
Brazil
West Africa
Asia
7
Asia Pacific Equity Research
27 June 2011
Ajay Mirchandani
(65) 6882-2419
ajay.mirchandani@jpmorgan.comFigure 15: Orderbook/fleet of AHTS
no. of vessels
Source: Clarksons, Updated as of May. 2011
Figure 16: Orderbook/fleet of PSV
no. of vessels
Source: Clarksons, Updated as of May. 2011
Figure 17: Historical fleet and orderbook/fleet ratio for Very large
AHTS
no. of vessels
Source: Clarksons, Offshore Intelligence Weekly, Dec. 2010
Figure 18: Historical fleet and orderbook/fleet ratio for Very large PSV
no. of vessels
Source: Clarksons, Offshore Intelligence Weekly, Dec. 2010
Figure 19: AHTS: New orders vs. Rates
Source: Clarksons
Figure 20: PSV: New orders vs. Rates
Source: Clarksons
Competition from the “east” remains long term threat
With majority of its yard being based in Norway (with hull outfitting done in
Romania (where labor cost is more competitive), STX OSV is admittedly not the
“cheapest” builder of OSVs. However STX OSV enjoys its competitive edge from (i)
customized solutions, (ii) high specification orders and (iii) avoid mass-build orders.
While this aspect of competition from Asian yards remains a “real significant”
medium term threat, given STX OSV’s (i) strong client relationships, (ii) leading
position in North Sea we see limited risk for now.
18.3%
0.0% 12.1%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
1996-01
1997-01
1998-01
1999-01
2000-01
2001-01
2002-01
2003-01
2004-01
2005-01
2006-01
2007-01
2008-01
2009-01
2010-01
2011-01
Orderbook/fleet as % of GT orderbook/fleet as % of no.
23.2%
11.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
1996-01
1997-01
1998-01
1999-01
2000-01
2001-01
2002-01
2003-01
2004-01
2005-01
2006-01
2007-01
2008-01
2009-01
2010-01
2011-01 orderbook/fleet as %
of GT orderbook/fleet as %
of no.
73
86 96
115
144
0%
20%
40%
60%
80%
100%
0
30
60
90
120
150
2006 2007 2008 2009 2010
Very Large > 16K bhp Fleet order book as % fleet
36.2%
91
111
128
163
182
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
30
60
90
120
150
180
210
2006 2007 2008 2009 2010
Very Large > 4K dwt Fleet order book as % fleet
43.2%
42 51 57
27 50
52
40
69
113
145
332
378
177 160
74
0
10,000
20,000
30,000
40,000
50,000
60,000
0
50
100
150
200
250
300
350
400
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
New Contracts Spot rates (₤ /day )
27
106
50
26
53
98 86
73 76
115
175 176
106
66
104
0
5,000
10,000
15,000
20,000
25,000
30,000
0
20
40
60
80
100
120
140
160
180
200
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
New Contracts Spot Rates (₤ /Day )
8
Asia Pacific Equity Research
27 June 2011
Ajay Mirchandani
(65) 6882-2419
ajay.mirchandani@jpmorgan.comValuation Comparables
Price-to-book: the key ratio to watch out for…
STX OSV Holdings, a wholly owned subsidiary of STX Europe (previously known
as Aker Yards), is one of the major global high-end designers and developers of
OSVs (Offshore support vessels), used in the offshore oil and gas exploration and
production and oil services industries.
We have presented what we see are the key comparables to STX-OSV including
(a) Singapore rig builders
(b) Korean ship-builders and
(c) Chinese ship-builders (moving into offshore)
Table 1: Valuation table for shipbuilding and offshore/marine comparables
Company Mkt Cap P/E (x) P/B (x) Dividend Yield (%) ROE (%) Net Gearing (%)
(U$ mm) 10A 11E 12E 10A 11E 12E 10A 11E 12E 10A 11E 12E 10A 11E 12E
Singapore
STX OSV Holdings* 1,236 6.6x 6.9x 6.5x 2.9x 2.2x 1.8x 2.3% 4.4% 4.6% 60.8% 36.4% 30.5% 77% 72% 53%
Keppel Corp 15,353 13.3x 13.6x 13.1x 2.8x 2.6x 2.4x 3.9% 3.9% 3.9% 22.3% 19.8% 18.8% Net Cash Net Cash Net Cash
Sembcorp Marine 8,867 13.6x 16.1x 14.6x 4.2x 4.1x 3.9x 6.8% 5.4% 6.0% 38.4% 26.3% 28.1% Net Cash Net Cash Net Cash
Average (Singapore) 11.2x 12.2x 11.4x 3.3x 3.0x 2.7x 4.4% 4.6% 4.8% 40.5% 27.5% 25.8% 12.8% 9.9% 8.0%
Korea
Daewoo 7,806 10.7x 10.5x 11.9x 2.1x 1.8x 1.6x 1.1% 1.2% 1.1% 21.4% 18.4% 14.2% 49.4% 21.4% 11.4%
Hyundai H.I. 30,260 7.0x 8.4x 8.8x 1.9x 1.8x 1.5x 1.6% 1.5% 1.4% 31.8% 24.7% 19.5% 20.4% 5.8% Net Cash
Samsung H.I. 9,639 11.0x 11.4x 12.2x 2.6x 2.3x 2.0x 1.1% 1.1% 1.1% 26.7% 21.5% 16.8% 34.7% 15.2% Net Cash
STX Offshore 2,146 31.5x 16.8x 11.4x 1.4x 1.3x 1.2x 0.0% 0.8% 1.4% 4.6% 10.8% 14.6% 108.5% 104.9% 28.0%
Hyundai Mipo 3,037 7.2x 7.5x 8.2x 0.8x 0.8x 0.7x 2.1% 2.1% 2.1% 13.3% 10.5% 8.9% Net Cash Net Cash Net Cash
Average (Korea) 13.5x 10.9x 10.5x 1.7x 1.6x 1.4x 1.2% 1.3% 1.4% 19.6% 17.2% 14.8% 53.2% 36.8% 19.7%
China
COSCO Corp 3,481 18.5x 16.0x 14.6x 3.6x 2.9x 2.5x 1.6% 0.0% 0.0% 21.8% 22.5% 20.1% 7.0% Net Cash Net Cash
Yangzijiang 4,512 9.5x 8.5x 8.2x 2.9x 2.4x 2.0x 3.1% 2.7% 2.8% 36.4% 29.4% 24.8% Net Cash Net Cash Net Cash
China Rongsheng 1,664 7.3x 7.3x 6.8x 1.4x 1.2x 1.0x 2.0% 1.5% 1.6% 20.7% 17.4% 16.4% Net Cash na na
Guangzhou 7,055 17.0x 15.2x 13.5x 2.8x 2.4x 2.1x 1.3% 1.2% 1.1% 17.5% 15.4% 14.5% na na na
CSSC 3,718 323.5x 41.3x 23.4x 2.8x 2.5x 2.3x 0.0% 0.0% 0.2% 0.9% 5.7% 9.6% 39.8% na na
COOEC 3,820 14.4x 5.7x 5.1x 1.8x 1.4x 1.1x 1.9% 1.8% 2.0% 23.4% 27.5% 24.3% 22.0% 29.0% 13.7%
Average (China) 20.4x 15.7x 11.9x 2.5x 2.1x 1.8x 1.6% 1.2% 1.3% 20.1% 19.6% 18.3% 22.9% 29.0% 13.7%
Malaysia
Kencana Petro.** 1,694 26.3x 23.7x 19.1x 6.2x 4.5x 3.5x 0.2% 0.6% 17.2% 23.0% 22.1% 20.6% 3.9% 3.8% 0.5%
MMHE 4,315 39.5x 29.3x 28.7x 9.2x 5.7x 5.0x 0.0% 0.7% 0.7% 26.4% 25.8% 18.5% Net Cash Net Cash Net Cash
Average (Malaysia) 33.5x 32.9x 26.5x 23.9x 7.7x 5.1x 4.2x 0.1% 0.7% 8.9% 24.7% 23.9% 19.5% 3.9% 3.8%
Overall Average 15.6x 14.9x 12.9x 3.1x 2.5x 2.2x 1.8% 1.8% 3.0% 24.3% 20.9% 18.8% 33.2% 27.1% 12.3%
Source: Bloomberg, Company, J.P. Morgan estimates (STX,Keppel, SMM, Cosco, MMHE, Rongsheng) Bloomberg consensus estimates [for others], ** Kencana’s year end is July ** priced as of 27 June
2011. *Note: Net Gearing for STX is not adjusted for construction loans.
… But don’t ignore price to earnings
Given the cyclical nature of its business (where order flow remains the key share
price driver), we believe price to book remains the key ratio to watch out for (in
conjunction with return on equity). However order momentum remains critical else
P/Bs become less relevant, in our view. However, we also believe price to earnings is
an important valuation metric for investors given the earnings growth outlook and
medium term order newsflow. In other words, in high growth markets (where P/B
levels can go to 6-9x), we believe investors would focus on P/Es and be willing to
pay a higher P/E multiple in scenarios of (a) earnings growth and / or (b) substantial
order book momentum in near to medium term. Singapore yards closest comparables
in our view given lack of listed peers
9
Asia Pacific Equity Research
27 June 2011
Ajay Mirchandani
(65) 6882-2419
ajay.mirchandani@jpmorgan.comWhile STX OSV is a OSV builder (and not a rig-builder like KEP, SMM) we believe
the Singapore are STX OSV’s closest comparables given:
(a) Largely catering to offshore segment
(b) While KEP, SMM cater to rig owners, STXOSV caters to suppliers of rig owners
(c) Steel is a small component of ship cost just as in case of Singapore rig builders
(d) Dominant global market position within the segments they operate in
While admittedly STX-OSV’s closer peers would be AHTS / PSV builders such as
Otto Marine, ASL Marine (trading at 8-10x ‘11E P/E and 0.7-0.8x ‘11E P/B) but
given their (i) limited market share and (ii) lack of execution history we don’t see
them as key comparables.
Table 2: Margins v/s Return on Capital Employed v/s 2-year EPS CAGR comparison (%)
Company EBITDA Margin EBIT Margin Net Margin Return on Capital Employed** EPS CAGR
2010 2011E 2012E 2010 2011E 2012E 2010 2011E 2012E 2010 2011E 2012E (10E-12E)
Singapore
STX OSV Holdings 11.2% 12.6% 12.8% 10.2% 11.6% 11.6% 8.7% 8.0% 8.1% 28.5% 26.8% 25.7% 0.8%
Keppel Corp 19.9% 16.9% 16.5% 18.0% 15.6% 15.2% 16.6% 12.2% 12.2% 26.1% 24.2% 22.4% 1.0%
SembCorp Marine 22.5% 17.0% 15.8% 20.7% 15.2% 14.2% 19.6% 14.1% 13.0% 36.3% 28.6% 30.8% -6.5%
Average (Singapore) 17.9% 15.5% 15.0% 16.3% 14.1% 13.6% 15.0% 11.4% 11.1% 30.3% 26.5% 26.3% -1.6%
Korea
Daewoo 9.7% 10.0% 8.3% 8.4% 8.7% 7.3% 6.5% 6.6% 5.9% 16.7% 18.8% 15.4% -4.7%
Hyundai H.I. 17.5% 16.2% 14.7% 15.4% 14.4% 13.0% 16.8% 14.5% 13.2% 20.7% 21.2% 17.5% -10.5%
Samsung H.I. 9.9% 10.1% 9.1% 7.6% 8.0% 7.1% 6.8% 6.7% 6.3% 19.4% 20.3% 17.2% -5.1%
STX Offshore & SB 5.8% 5.7% 6.3% 4.7% 5.7% 7.4% 1.9% 2.3% 3.4% 5.2% 22.3% 16.4% 61.9%
Hyundai Mipo 15.6% 12.7% 11.4% 14.6% 12.2% 11.3% 12.1% 10.8% 10.1% 13.0% 11.9% 9.2% -6.5%
Avg (Korea) – ex HHI
& Hyundai Mipo 8.5% 8.6% 7.9% 6.9% 7.5% 7.3% 5.1% 5.2% 5.2% 13.8% 20.5% 16.3% 17.4%
Average (Korea) 11.7% 10.9% 10.0% 10.1% 9.8% 9.2% 8.8% 8.2% 7.8% 15.0% 18.9% 15.1% 7.0%
China
COSCO Corp 16.1% 17.1% 17.5% 11.5% 12.6% 13.0% 6.4% 6.6% 6.9% 33.5% 34.8% 31.9% 12.4%
Yangzijiang 22.2% 22.4% 20.4% 20.8% 20.5% 18.5% 22.9% 22.5% 20.1% 26.7% 23.5% 20.8% 7.8%
China Rongsheng NA N/A N/A 8.6% N/A N/A 7.9% 9.6% 9.9% 50.8% N/A N/A 58.8%
Guangzhou 8.4% 7.9% 7.7% N/A 5.7% 5.7% 10.1% 9.2% 8.9% N/A 9.5% 10.3% 4.0%
CSSC 13.7% 14.0% 14.1% 8.8% N/A N/A 8.8% 10.1% 10.5% na na na 12.3%
COOEC 15.7% 20.1% 18.5% 5.0% N/A N/A 1.2% 5.8% 7.4% 2.7% na na 264.0%
Average (China) 15.9% 17.3% 17.2% 12.4% 17.9% 14.7% 10.5% 11.8% 11.7% 18.6% 22.5% 21.7% 61.4%
Malaysia
Kencana Petro. 18.2% 20.6% 20.0% 16.1% 18.6% 17.8% 12.5% 14.2% 13.6% 22.3% 30.8% 29.2% 17.5%
MMHE 6.6% 9.6% 14.2% 6.2% 9.0% 13.3% 4.5% 10.2% 14.8% 31.4% 17.4% 15.4% 17.3%
Average (Malaysia) 12.4% 15.1% 17.1% 11.1% 13.8% 15.5% 8.5% 12.2% 14.2% 26.8% 24.1% 22.3% 17.4%
Overall Average 15.3% 15.8% 15.2% 12.9% 13.3% 12.8% 11.1% 11.1% 10.7% 20.3% 21.6% 19.1% 16.7%
Source: Bloomberg, Company data, J.P. Morgan estimates (Keppel, SMM, Cosco, MMHE, Rongsheng). **RoCE defined as EBIT divided by ‘Equity plus Net Debt’, however if net cash taken Equity
Margin profile, order outlook and gearing differentiates P/B for the yards
On closer observation, the Big-3 Korean yards seem to trade at a steep discount on
P/B basis (1.6-2.0x) as compared to the other ASEAN and comparable China yards
(2.2-5.1x). While not directly relevant we believe it is important to highlight the key
reasons for this especially given their (a) low P/Es and (b) solid RoE profile. We see
3 factors for a yard to trade at significant premium on P/B:
(i) Margins: Korean ship-builders have 500-900 bps lower margins (primarily also
driven by high cost of labor force) resulting in lesser premium to book.
(ii) Order outlook: We see this aspect as key driver for premium to book.
(iii) Gearing / RoCE: While gearing usually is RoE accretive (explaining Koreans’
solid profitability in spite of lower margins), we believe the business model is
usually cash neutral to positive (customer usually funds construction) in such a
scenario (especially with unclear order outlook) that leads to lower P/B in our view.
10
Asia Pacific Equity Research
27 June 2011
Ajay Mirchandani
(65) 6882-2419
I'm still holding on since close high today.
Released all @ 1.36 in the morning.... Small profit
Post Reply
4321-4340 of 5364
with high vol..keep in cpf or load up $2 stock at least....see its related co stx pan ocean > $8...when it was tarded went below ipo same time wehn london's train was bombed bt terriorists...but not our stx osv never went below 79cts even with North Korea bomnbed S Korea and also Japan's earthquake didi not drop below ipo...alll analysts recommendation > $1.60