Soechi Lines Company Focus

Transcription

1 10 April, 2015 Soechi Lines Company Focus Willinoy Sitorus More Clarity On Earnings Still looks attractive despite 23%/19% EPS cut We cut EPS by 23/19% as we lower our vessel expansion and shipyard expansion assumptions. Following the FY14 earnings of USD33m (+9.9% y-o-y), we expect SOCI to book EPS growth of 32.7%/24.8% y-o-y respectively driven by 7 fleet expansion that will translate into earnings this year and large portion of percentage completion of its USD92m secured contracts for its ship building segment. After 2014 s jump in gross margin to 40% vs 34% in 2013 majorly due to benefit from USD appreciation towards IDR, we expect 2015F gross margin to normalize to 34%. SOCI is one of the few tanker players that is immune towards fall in oil price (explanation on page 3). Long-term contracts (2-8 years) obtained for its shipping segment We expect 7 vessel expansion this year worth USD41m which are 2 Aframax (USD36m - delivered back in Dec 14), 2 LPG vessels (USD12m - delivered in 1Q15), one small vessel (USD6m to be delivered in 2Q15) and 2 Medium Ranger vessels (USD23m to be delivered in 2Q15) as backbones to SOCI s earnings growth. Since Dec 14-Mar 15, SOCI has secured 2 Aframax vessels with both 2 years contracts and secured 2 LPG vessels both with marvelous 8 years contracts. We expect 3 vessels to come in 2Q15 onwards should reap long -term contracts as well. SOCI s USD288m worth of backlog end of 2014 suggesting strong earnings quality in the next 2 years. Government supportive of the shipbuilding business Prior to IPO, SOCI signed USD92m backlog for its shipyard business with Pertamina to build 3 vessels worth of USD75m and Conoco Phillips to build 2 vessels worth USD17m. As of Mar 15 its vessels are at completion stages ranging from 16%-65%. We expect the 1st vessel delivery to be in 4Q15. The government s approach towards import-substitution/domestic manufacturing base approach favors the shipbuilding business in Indonesia despite the industry s infancy stage. This can be seen from the government s recent 4 incentives in VAT, import duty, procedure simplification & income tax for the shipbuilding industry. Maintain BUY but lower TP We lower our TP to IDR850 (from IDR950), implying 11x 2015 P/E, using 10.5% WACC and 4% LT growth rate. We change our valuation method to DCF from P/E target (explanation on pg.3). Ever since the shipping tax hike proposal by the government and sustainable fall in oil price, share price has declined from its peak at IDR735 back in 12 Dec 2015 to current share price at IDR615. We think that negative sentiments to slowly fade out as investors perceive shipping tax issue would not turn into reality and oil price decline less likely to negatively impact SOCI. With double digit earnings growth, double digit ROAE and strong earnings quality (from secured contracts), we believe its valuation at 8x/7x P/E is mispriced in the market. Companies Data E 2016E Revenue (USD m) Net profit (USD m) EPS (Rp) EPS growth (%) , P/E (x) P/BV (x) Div. yield (%) EV/EBITDA Soechi operates in the O&G transportation business with Pertamina as its core customer (~50% of revenue contribution). Soechi also operates a 220ha shipyard in Karimun island. Soechi possesses 33 vessels with total capacity of 1.2m tonnes. The vessels ranges from small size (1, dwt) to very large crude carriers (300k dwt). BUY Company Update Share Price PT Trimegah Securities Tbk - COMPANY FOCUS 1 Sector Rp850 Rp615 Shipping Price Target Rp850 (38%) Stock Data Reuters Code SOCI.JK Bloomberg Code SOCI.IJ Issued Shares (m) 7,059 Mkt Cap (Rpbn) 4,341 Avg. Value Daily 3 month (Rpbn) Wk range (Rp) 750 / 550 Major Shareholders Soechi Group 80.6% Darmadi Go 1.7% Utomo Hartono 1.7% Utomo Paulus 1.7% Free float 15% Consensus Net Profit 15F 16F Consensus (Rp) TRIM vs Cons. (%) -9.7% -12.6% Price VS Value Trade Avg. 5 Day MA Trading Value (RHS) Price (LHS) 0 Dec-14 Feb-15 Apr-15 (Rpbn)

2 Figure 1. Earnings revision Source: TRIM research Figure 2. DCF valuation NEW OLD CHANGE 2015F 2016F 2015F 2016F 2015F 2016F Revenue % 2.3% Gross profit % -12.3% Gross margin 34.1% 30.9% 35.5% 36.1% Operating profit % -17.9% Op. profit margin 29.3% 26.4% 32.0% 32.9% Net profit % -22.6% Net margin 21.7% 19.6% 25.7% 25.9% EPS (IDR) % -18.8% 2015F 2016F 2017F 2018F 2019F EBIT (1- tax) Depreciation & amortisation Changes in working capital Capex FCFF Discounted FCFF Discounted FCFF ( ) 160 Discounted terminal value Minority interest 0 - Debt Cash 20 Equity (USDm) 462 Equity (IDRbn) 6,000 Shares outstanding (m) 7,059 Target price 850 Source: TRIM research Figure 3. WACC calculation Risk free rate 7.3% Market premium 5.0% Beta 1.1 Debt rate 9.0% Debt proportion 60.0% Equity cost of capital 13.5% Debt cost of capital 8.5% WACC 10.5% LT growth rate 4% Source: TRIM research PT Trimegah Securities Tbk - COMPANY FOCUS 2

3 Valuation We change our valuation method to DCF from target based P/E method. The reason is that we believe the fundamentals are different now for SOCI compared to WINS and LEAD or any other offshore related players. WINS and LEAD are hit from the fall in oil price mainly due to its exposure in O&G exploration activities while SOCI s shipping business is highly exposed to production activities which is more immune towards fall in oil price. There has been a de-correlation of Baltic dry tankers, suezmax and aframax rates against oil price ever since post global crisis (2010 onwards) which somehow puts SOCI in a favorable position now. Around 30% of SOCI s shipping business are under spot contracts. Spot contracts should benefit during this time around as they bear the lower bunker/fuel cost and reaping revenue at stable rates despite fall in oil price. Furthermore, we see no more aggressive capex for SOCI s shipping yard and its strong USD92m back log contracts has already been secured, indicating a strong free cash flow from the previous years negatives. SOCI is currently trading at hefty 42% and 51% discount against P/E of its domestic and regional peers. With SOCI s double digit earnings growth and double digit ROAE puts SOCI s valuation undemanding. Figure 4. Peers comparison Market cap PER (x) PBV (x) EV/EBITDA (x) ROE (x) EBITDA (USDm) CAGR (2013- Indo near-pure OSV Logindo Samudramakmur na % Wintermar Offshore Marine % Malaysia OSV/oil vessel Alam Maritim Resources % Bumi Armada 4, % MISC 10, % Dayang Enterprise % Muhibbah Engineering % Perdana Petroleum % Perisai Petroleum Teknologi % Petra Energy % Sapurakencana Petroleum 3, % Singapore oil vessel own- Ezion Holdings 1, % Ezra Holdings % Mermaid Maritime % Regional shipyard compa- Otto Marine na na % Weighted avg. 23, % SOCI % Disc./premium to peers -42.1%-50.6%-24.5% -30.4%-51.0%-50.8% 69.9% 88.4% Source: Bloomberg, TRIM research PT Trimegah Securities Tbk - COMPANY FOCUS 3

4 Figure 5. Since Jan 14, shipping index has de correlated against global crude oil price (USD/barrel) Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Baltic dirty Tanker Index Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 BALTIC CLEAN TANKER IX Jan-15 Apr-15 Brent crude oil price - RHS Source: Bloomberg Figure 6. Same goes for tanker rates against global crude oil price (USD/barrel) Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Baltic dirty Tanker Index Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 BALTIC CLEAN TANKER IX Jan-15 Apr-15 Brent crude oil price - RHS Source: Bloomberg PT Trimegah Securities Tbk - COMPANY FOCUS 4

5 Figure 7. 4 incentives given by the MoF to the local shipbuilding industry No. Incentives Comment 1 Incentive in Value Added Tax The incentive is to alleviate financial harmness for the local shipping industry 2 Incentive in Import duty The incentive is to reduce import tariff which will be used for local shipbuilding 3 Procedure simplification for import duty The incentive is to simplify the procedure process of Import duty borne by the government (BMDTP) 4 Incentive in Income tax This is done by giving tax allowance for local shipbuilders Source: MoF Part of the crucial backbone for energy sustainability and rise in maritime sector We see SOCI is in a strong position to benefit from the maritime and energy sector in the long-run. Pertamina s gain in power in the upstream and mid-stream level should translate to stronger oil production, tame in the nation s continuous depleting reserves and aggressive gas infrastructure developments in the short and long run. SOCI currently has 1 vessel operating at the Cepu block (to produce more than 20% of nation s oil production) which is a strong catalyst for vessel expansion going forward. Oil & Gas law revision a positive for the O&G sector The government plans to release a revised O&G law in 2H15 revising the current Law No. 22/2001. We expect the revised law is designed to protect the nation s depleting oil reserves and to push gas infrastructure to slowly switch to gas from the relatively expensive oil-based related energy. We believe this should be positive for SOCI as end to end provider serving the entire supply chain of O&G water transportation. Figure 8. Draft of revision proposal of current O&G law 2001 Clause No. Changes/additional Clause 4 3 The government acting as a controller of the mining industry has granted PT. Pertamina for each of its Woking Fields Development 4 Government has formed a coordinating board to ensure distribution and availability of Fuels, Natural Gas and development of Infrastructure Clause 6 1 Upstream oil and gas activity is to be exercised based on Upstream Business Permit from the Government for Special SOE or PT.Pertamina for every development of its Working Fields 2 Upstream Business Activity as stated in paragraph 1 exercised with provisions as follow: a. Upstream business license was given to PT. Pertamina Persero for its Working fields where Technology, Capital, and Risks are able to be developed independently by PT. Pertamina b. Upstream Business Permit was given to Special SOE for its working fields which Technology, Capital and Risk need to be paired with BU/BUT in Letter of Agreement 3 Upstream Business which exercised and controlled with Upstream Business Permit of natural oil and gas, has to meet these requirements: a. Ownership of Natural Resources is still under the authority of government b. Controlling of operational management is at PT.Pertamina or Special SOE c. Risk and Capital is the responsible of BU/BUT Clause 26 1 Development of Migas by Special SOE for Downstream area as stated in Clause 4 Paragraph 4 includes: a. Buying oil and natural gas from the producers of oil and natural gas b. Buying imported oil and gas c. Process the natural oil into fuels d. Cut down the price on fuels to be sold to General Commercial Business Entities (wholesale) e. Accept the assignment of providing and distributing of specific fuel types f. Ensure availability of National Fuels g. Ensure availability and distribution of gas to fulfill country's needs h. Selling natural gas to business entities in Natural Gas industry i. Building infrastucture for Natural Gas Pipeline j. Able to be assigned to provide and distribute natural gas allocated by Government Clause 66 1 Supervision of regulation against the provision and distribution of fuels, allocation of natural gas through pipeline and commercial business activities through pipeline exercised by Badan 2 Functions of the organization is for allocation of natural gas through pipeline will be fair and efficient to increase local gas usage 3 Organization's responsibility includes adjusting and determination regarding: a. Availability of facility and transmission and distribution of natural gas through pipeline b. Cultivating natural gas through pipeline c. Logistics fee of natural gas through pipeline 4 Organization has authority in supervising businesses stated in paragraph 3 Source: MoF PT Trimegah Securities Tbk - COMPANY FOCUS 5

6 Income Statement (USDm) F 2016F Revenue Growth (%) 9.6% 49.0% 19.8% 47.9% 38.2% Gross profit Op. profit EBITDA Growth (%) 8.6% 44.1% 36.8% 27.3% 18.5% Net int. inc./(exp) Gain/(loss) forex Other inc./(exp) Pre-tax Profit Tax Minority int Extra. items Reported net profit Core net profit Core prof. growth (%) -64.1% % 68.8% 24.2% 24.8% Balance Sheet (USDm) F 2016F Cash & equivalents Other curr. Assets Net fixed asset Other non-curr. assets Total asset ST debt Other curr liab LT debt Other LT liab Total Liabilities Share capital Add. paid in capital Retained earnings Others Total equity Total liab. & equity Cash Flow (USDm) Key Ratio Analysis F 2016F F 2016F Net profit Depr./amort Chg in working Cap Others CF's from oprs Capex Others CF's from investing Net change in debt Others CF's from financing Net cash flow Others Cash at BoY Cash at EoY Free Cashflow Profitability Gross margin (%) 32.4% 33.7% 40.3% 34.1% 30.9% Op. margin (%) 24.7% 27.4% 35.0% 29.3% 26.4% EBITDA margin (%) 46.6% 45.0% 51.4% 44.2% 37.9% Core net margin (%) 2.4% 18.4% 25.9% 21.8% 19.6% ROAE (%) 3.7% 27.3% 17.6% 15.9% 17.1% ROAA (%) 1.0% 9.0% 8.2% 8.7% 9.7% Stability Current ratio (x) Net debt to equity (x) Net debt to EBITDA (x) Interest coverage (x) A/R turnover (days) Inv. turnover (days) A/P turnover (days) Capital History Date 3-Dec-14 PT Trimegah Securities Tbk - COMPANY FOCUS 6

7 PT Trimegah Securities Tbk Gedung Artha Graha 18 th Floor Jl. Jend. Sudirman Kav Jakarta 12190, Indonesia t f DISCLAIMER This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affiliated companies and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has been produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities. While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication, Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided solely for the information of clients of Trimegah Securities who are expected to make their own investment decisions without reliance on this report. Neither Trimegah Securities nor any officer or employee of Trimegah Securities accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted upon or used the information herein contained, or the research or analysis on which it is based, before publication. Trimegah Securities may in future participate in an offering of the company s equity securities.