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Soechi Lines Summary

Core Content

Soechi Lines (SOCI) is a leading Indonesian oil-tanker company with a significant market presence. The company is 85% owned by three brothers, Go Darmadi, Paulus Utomo, and Hartono Utomo, and operates with a domestic market share of 16%. It has a total of 33 vessels with a capacity of 1.2 million DWT, including 7 Aframax and VLCC vessels, 2 FSO (Floating, Storage, Offloading) vessels, and 23 GP (General Purpose) vessels. SOCI has also started its shipbuilding business and is developing its shipyard in Karimun, Riau, which is expected to become the largest domestic shipyard with 44 total vessel repair and maintenance capacity.

Main Business Segments

• Upstream Segment: SOCI owns 7 Aframax and VLCC vessels, including 2 FSOs for storing oil production from offshore-onshore oil fields and 3 MR (Medium Range) units for transporting oil from fields to refineries.
• Downstream Segment: SOCI operates 23 GP vessels for transporting oil & gas to depots for end consumers.
• Shipyard Business: SOCI's shipyard in Karimun has a total area of 220 hectares, with 30% currently utilized. It plans to start full operation in 2H15 and has secured a USD92mn shipbuilding contract with Pertamina for 5 vessels.

Key Financials (2013-2016F)

Key Performance Indicators

• Utilization Rate: Expected to remain at nearly 90% from 2014-2016F, driven by stable state-owned clients like Pertamina.
• Pertamina's Contribution: SOCI's largest customer, contributing 55% to its revenue and providing earnings stability.
• Shipyard Contribution: Expected to grow faster than the shipping division, contributing 22% of total 2015 revenues, though it has lower margins.
• Gross Margin: Likely to decrease in 2015F to 32% due to increased shipyard business, but is expected to improve to 33% in 2016F with the start of higher-margin repair operations.
• CAPEX: SOCI plans to invest USD130mn in 2015, primarily for new vessels and shipyard expansion.
• Net Profit Growth: Expected to grow 33% y-y in 2015, driven by new vessels and shipyard business.
• Free Cash Flow: Negative in 2015F due to increased capex, but expected to improve in the future.

Valuation and Investment Highlights

• Target Price (TP): IDR800 (2015F PE of 11x), which is in line with its peers.
• Discount to Region: Currently trading at a 2015F PE of 8.4x, which is a 20% discount to the regional oil & gas tanker sector.
• Upside Potential: 31% upside to the TP, making it an attractive investment opportunity.
• Market Performance: SOCI's share price has underperformed by 11% ytd due to negative sentiment from low oil prices, but this is expected to reverse as earnings stabilize.

Growth Drivers

• Vessel Expansion: SOCI plans to add 5 new vessels in 2015, increasing its total capacity.
• Shipyard Development: Expansion of shipyard operations in Karimun, expected to boost earnings from shipbuilding and repair services.
• Demand for Tankers: Expected to increase due to rising GDP and oil consumption in Indonesia.
• State-Owned Clients: Continued support from Pertamina and potential from PLN for LNG-powered generators.

Risks

• Competition: Greater availability of Indonesian flag tankers could impact SOCI's market share.
• Market Sentiment: Continued negative sentiment from low oil prices may affect the company's performance.

Peer Comparison

Outlook

SOCI is expected to maintain high utilization rates and benefit from the growth of the oil and gas sector in Indonesia. The company's expansion plans, combined with its shipyard development, are seen as key growth drivers. Despite a temporary dip in its share price due to market sentiment, the company's fundamentals are strong, and its valuation is considered attractive compared to regional peers.