20140103-Maybank_KERPL-Mermaid_Maritime_Things_Are_Going_Swimmingly_31页_1mb

Mermaid Maritime Summary

Core Information

• Company: Mermaid Maritime, an international provider of specialist subsea and drilling services to the offshore oil and gas industry.
• Ticker: MMT SP
• Shares Issued (m): 1,413.1
• Market Cap (USD m): 574.3
• 3-mth Avg Daily Turnover (USD m): 2.1
• ST Index: 3,172.95
• Free float (%): 24
• Major Shareholders:
  • Thoresen Thai Agencies: 57%
  • Mahagitsiri Family: 19%

Key Financial Indicators

• ROE (annualised, %): 3.5
• Net Gearing: Net cash
• NTA/shr (USD cts): 37.3
• Interest Cover (x): 4.5

Share Price and Target Price

• Current Share Price (SGD): 0.51
• Target Price (SGD): 0.61 (New)
• Upside: 20%

Investment Thesis

• Rating: Buy
• Reasoning: Mermaid Maritime is poised for significant growth due to its strong orderbook, increasing utilisation of subsea assets, and strategic board changes.
• Growth Potential:
  • Projected three-year EPS CAGR of 59% from FY9/14E to FY9/16E.
  • Potential to evolve into an integrated oilfield services player similar to SapuraKencana.
• Orderbook:
  • Total: USD650m (including USD150m in options)
  • Recognised in FY9/14E: USD314m
  • Recognised in FY9/15E: USD154m
  • Recognised in FY9/16E+: USD177m
• Subsea Utilisation Growth:
  • FY9/13: 71%
  • FY9/14E: 89%
  • FY9/15E: 91%
  • FY9/16E: 92%
• Earnings Growth:
  • FY9/13: 389% YoY
  • FY9/14E: 212% growth
  • FY9/16E: 21% growth from new tender rigs

Valuation Metrics

• P/E (x):
  • FY9/13: 36.6
  • FY9/14E: 11.8
  • FY9/15E: 11.0
  • FY9/16E: 9.0
• EV/EBITDA (x):
  • FY9/13: 10.7
  • FY9/14E: 7.2
  • FY9/15E: 6.7
  • FY9/16E: 4.8
• P/BV (x):
  • FY9/13: 1.1
  • FY9/14E: 1.0
  • FY9/15E: 1.0
  • FY9/16E: 0.9
• Dividend Yield (%):
  • FY9/13: 2.1
  • FY9/14E: 1.2
  • FY9/15E: 1.2
  • FY9/16E: 1.2

Strategic Factors

• New Board:
  • Mr Chalermchai Mahagitsiri (politically connected Mahagitsiri family)
  • Mr Prasert Bunsumpun (former CEO of PTT Plc and chairman of PTTEP)
• Asset Investment:
  • Plans to invest ~USD300m in two new tender drilling rigs.
  • Expected to add USD17.4m in gross profit annually from each rig.
• Operating Leverage:
  • Improvements in subsea asset utilisation and AOD contributions will drive earnings growth.

Industry Dynamics

• High Oil Prices: Sustained at USD100/bbl, supporting E&P activities and drilling demand.
• Subsea Market Growth: Expected to grow at 11.9% CAGR between 2012 and 2020.
• Thailand's PTTEP: Increased capex budget from USD9b (2008-2012) to USD25b (2013-2017).
• Subsea Capex: Forecasted to reach USD124b over 2013-2018, double that of the previous five years.

Comparative Analysis

• Ezion (EZI SP):
  • Market Cap: USD2,121m
  • EPS CAGR (FY12-FY14E): 33%
  • P/E: 10.8x (FY9/16E)
• Peer Valuation Table:
  • Mermaid Maritime:
    • Market Cap: USD571m
    • Current Price: SGD0.61
    • Target Price: SGD0.61
    • EPS Growth: 59% CAGR
    • EV/EBITDA: 4.8x
    • P/E: 11.0x
    • P/BV: 1.0x
    • ROE: 10.2%
  • SapuraKencana:
    • Market Cap: USD8,653m
    • P/E: 29.6x
    • EV/EBITDA: 19.6x
    • P/BV: 3.3x
    • ROE: 11.8%

Key Forecast Assumptions

• Subsea Utilisation:
  • Increasing from 71% in FY9/13 to 89% in FY9/14E.
• Drilling Utilisation:
  • Expected to increase from 65% in FY9/13 to 87% in FY9/16E.
• Revenue from AOD:
  • Stable contributions from three jackup rigs with 3+1-year contracts with Saudi Aramco at USD180K/day.
• Gross Profit from AOD:
  • USD114m in FY9/14E, USD114m in FY9/15E, USD114m in FY9/16E.
• Net Profit from AOD:
  • USD76m in FY9/14E, USD76m in FY9/15E, USD76m in FY9/16E.
  • Attributable to Mermaid: USD26m in FY9/14E, USD26m in FY9/15E, USD26m in FY9/16E.

Conclusion

Mermaid Maritime is a promising investment with a strong orderbook, increasing asset utilisation, and strategic leadership changes. The company has the potential to grow into an integrated oilfield services player, similar to SapuraKencana. The target price of SGD0.61 is based on a 14x FY9/14E P/E, reflecting the strong growth prospects and improved financial performance. The investment thesis is supported by historical comparisons and industry trends, indicating that Mermaid is well-positioned for future success.