JAYA 'likely' to be taken over; STX OSV fair value is $1.60, BROADWAY'S loss 'worse than expected'

Excerpts from latest analyst reports:

"Jaya has been a laggard in the recent O&M revival," says CIMB.

CIMB says 'highly likely' JAYA HOLDINGS would be taken over by IHC

Analyst: Yeo Zhi Bin

Our channel checks suggest that corporate actions could be on the cards, potentially reversing Jaya’s fortunes.

Dutch shipbuilder IHC Merwede has identified Jaya as a possible acquisition target. The Dutch shipbuilder had been talking to two yard operators in Batam, Indonesia: Dubai Drydocks World and Jaya Holdings. The asking price by Dubai was found too high, and IHC was exploring an option with Jaya.

The company has lined up bank financing for its planned yard acquisition.

Even if there are no M&As, the stock offers an attractive risk-reward balance.

Takeover on the cards?  There is a high likelihood that IHC could acquire Jaya. We think that IHC could offer up to S$0.65/share for Jaya (its net assets excluding debt obligations), translating into 34% upside for Jaya’s share price.

Jaya’s extensive networks in the region and specialisation in low-mid-end vessels would complement IHC’s higher value offerings, we believe. Further, a takeover would mean immediate earnings accretion for IHC.

Limited downside; we see value: Even if a takeover does not materialise, downside is limited, in our view. The stock is trading at 0.6x P/BV vs. its trough of 0.5x.

If we were to break up the company today, we estimate its RNAV at S$0.72 (factoring in the market value of its charter fleet only and excluding the potential value of WIP), or 48% upside to Jaya’s trading price.

AmFraser says conservative investors can take profit on STX OSV

Analyst: Lee Yue Jer

STX Group has hired two investment banks to manage the sale of a controlling stake in STX OSV Holdings.

At what price a general offer? Our P/E-based fair value remains $1.60.

Our “true” market-unbiased DCF fair value is $1.72. However, the weak bargaining position of STX Europe implies that the final price could be at a discount to fair value.

The current price is likely a discounted probability-weighted function of the final sale price and the chance that the entire deal falls through, which we must add is non-zero. Hence, we feel that the current market price incorporates a likely sale price in the region of $1.50 to $1.60. We would treat a price higher than this, while not impossible, as a bonus.

Maintain Buy, with a caveat: Conservative investors can consider taking profit and switching to a more deep-value stock like Yangzijiang even now, and especially if the price gets beyond $1.45 where the risk-reward ratio turns highly unfavorable. More aggressive speculators can play this through to the end for the potential final payoff in the short term.

Recent story: Neutral on STX OSV, $1.65 target for ARA, 'cheap' is CHINA MINZHONG

DBS Vickers says BROADWAY'S 4Q expected loss 'worse than expected"

Analyst: Tan Ai Teng 

Broadway produces HDD actuator arms

Broadway warned that it will report a net loss for 4Q2011 and that FY11 will also be loss making. This is worse than our estimates, as we were projecting 4Q11 to breakeven.

The net loss for 4Q2011 is attributed to i) impairment charges of US$4.4m on fixed assets and inventories damaged by the floods in Thailand; and ii) undisclosed amount of operational losses arising from the floods.

As a result of the loss in 4Q11 and unrealized mark-to-market (MTM) losses arising from the changes in fair value of certain forward foreign exchange contracts, of which a substantial amount was recognised in 3Q2011, Broadway expects to be loss making for FY11. Excluding these one-off charges, management guides that the group would have been profitable in 4Q2011 and FY2011.

We maintain our view that 4Q11 was the worst quarter and that the rebound in demand will be evident in 1Q12 although the quantum still hinges on the speed of recovery of the entire HDD supply chain.

For recent reader discussion in our forum: BROADWAY INDUSTRIAL. ripe for picking now!