Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Tanjung Offshore Bhd
(Oct 3, 73 sen)
Upgrade to buy at 74 sen with target price of 98 sen: TOFF's calculated move to order two new platform supply vehicles (PSV) could benefit it well, as we anticipate an upcoming slew of Petronas PSV contract awards in 2012. While financing and operating risks are concerns, the share price downside is limited with the stock currently trading below its 2008's price-to-book value (P/BV) trough valuations, coupled with improving prospects.
The stock trades at just 0.6 times P/BV, which is not justified considering that profits will start to turn in from 2012. Our 98 sen target price (0.8 times P/BV) offers 32% upside potential.
TOFF has contracted Muhibbah Engineering and Labuan Shipyard to build two PSVs for RM200 million. The two PSVs are scheduled for delivery in 2013. We would note that both shipyards have no PSV building track record.
We gauge these PSVs to be of medium range specifications (i.e. 3,000-4,000 dwt, around 80 metres in length) and capable of deepwater operations. Based on these terms, the RM100 million price tag per vessel appears fair compared with with recent newbuilds. Bumi Armada recently ordered a pair of PSVs from Nam Cheong for over US$40 million (RM128.4 million) each with a 2012 due date. ''
No contracts in hand but the probability of securing charters is high. We understand that the new orders are not backed by existing charter contracts. However, the likelihood of securing charters for PSV is higher compared with other vessels in the market. It is the preferred transportation choice for its speed, especially in the offshore deepwater field as it covers longer distances at a shorter period vis-''-vis its peers.
We expect these newbuilds to be targeted for domestic charter contracts which are expected to come in by end-2012, just before their delivery date. TOFF will likely finance the purchases on an 85:15 debt-to-equity basis. As such, net gearing should rise from 1.4 times now to 1.9 times.
Based on an estimated day rate of US$30,000 each vessel should deliver RM32.9 million in revenue and RM8.9 million in net profit (27% margin) after netting off depreciation cost (-RM5 million), interest expense (-RM6 million; 7% interest), administration, crew costs (- RM10 million) and taxes (-RM3 million). As such, these two vessels could add about RM17.8 million a year to TOFF's future net profit. We have not imputed this into our forecasts as the impact is not during our forecast period. 'Maybank IB Research, Oct 3
This article appeared in The Edge Financial Daily, October 4, 2011.
Company Name: TANJUNG OFFSHORE BHD
| Research House: MAYBANK | Price Call: BUY | Target Price: 0.98 |
Tanjung Offshore Bhd
(Oct 3, 73 sen)
Upgrade to buy at 74 sen with target price of 98 sen: TOFF's calculated move to order two new platform supply vehicles (PSV) could benefit it well, as we anticipate an upcoming slew of Petronas PSV contract awards in 2012. While financing and operating risks are concerns, the share price downside is limited with the stock currently trading below its 2008's price-to-book value (P/BV) trough valuations, coupled with improving prospects.
The stock trades at just 0.6 times P/BV, which is not justified considering that profits will start to turn in from 2012. Our 98 sen target price (0.8 times P/BV) offers 32% upside potential.
TOFF has contracted Muhibbah Engineering and Labuan Shipyard to build two PSVs for RM200 million. The two PSVs are scheduled for delivery in 2013. We would note that both shipyards have no PSV building track record.
We gauge these PSVs to be of medium range specifications (i.e. 3,000-4,000 dwt, around 80 metres in length) and capable of deepwater operations. Based on these terms, the RM100 million price tag per vessel appears fair compared with with recent newbuilds. Bumi Armada recently ordered a pair of PSVs from Nam Cheong for over US$40 million (RM128.4 million) each with a 2012 due date. ''
No contracts in hand but the probability of securing charters is high. We understand that the new orders are not backed by existing charter contracts. However, the likelihood of securing charters for PSV is higher compared with other vessels in the market. It is the preferred transportation choice for its speed, especially in the offshore deepwater field as it covers longer distances at a shorter period vis-''-vis its peers.
We expect these newbuilds to be targeted for domestic charter contracts which are expected to come in by end-2012, just before their delivery date. TOFF will likely finance the purchases on an 85:15 debt-to-equity basis. As such, net gearing should rise from 1.4 times now to 1.9 times.
Based on an estimated day rate of US$30,000 each vessel should deliver RM32.9 million in revenue and RM8.9 million in net profit (27% margin) after netting off depreciation cost (-RM5 million), interest expense (-RM6 million; 7% interest), administration, crew costs (- RM10 million) and taxes (-RM3 million). As such, these two vessels could add about RM17.8 million a year to TOFF's future net profit. We have not imputed this into our forecasts as the impact is not during our forecast period. 'Maybank IB Research, Oct 3
This article appeared in The Edge Financial Daily, October 4, 2011.
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