Chart : Bloomberg
WITH THE offshore & marine sector enjoying buoyant times, Jaya Holdings has attracted renewed investor interest, resulting in its stock price rising recently to 69.5 cents, or about 25% higher than at the start of December 2012.
The brighter prospects in 2012 have resulted in higher fleet utilisation rates and rising charter rates for Jaya.
While the recent 1-2 months were soft, the outlook remains robust as a result of sufficiently high oil prices that are supportive of active offshore oil exploration and production.
Amid all that, this old Singapore company - 30 years plus - is reinventing itself.
It has shaken off debt issues that arose from a deep industry downturn following the 2008 global financial crisis, and is being helmed by a new CEO, reinforced management team, and a new board.
> For the history of Jaya's debt trouble and subsequent rescue by a consortium of investors, you can read CIMB's excellent report dated 6 Sept 2012 here.
In a recent meeting with NextInsight in his Tuas Crescent office, the CEO, Venkatraman Sheshashayee, painted a broad picture of where Jaya is headed.
From being a shipbuilder focused on speculative building during the boom years, Jaya has placed itself on the more conservative route of building ships only when there are firm orders.
And there could be interesting contracts to come following on Jaya's tie-up, signed in July 2012, with IHC Merwede.
IHC Asia Pacific, a subsidiary of IHC Merwede, has signed an agreement with Jaya, which enables IHC Asia Pacific's high-specification offshore vessels to be produced by Jaya at its yards in Singapore and Batam.
In the meantime, Jaya is building up its own fleet of offshore support vessels for its core business of chartering.
It has 28 vessels with an average age of only 2.9 years. The charter backlog amounted to US$196 million as at end-Sept 2012.
Ten vessels are being built and will be competed over the next 2 years (which would boost its RNAV to over S$1 per share, by some investors' estimates) but even with the bigger fleet, “we would still be sub-optimal,” said Shesh.
The market is very fragmented and Jaya would still have some 200 other players to compete with – they have anything between 5 and 40 vessels for charter.
Elaborating, he said: "Ideally, we want to be in 6-8 markets, and we need to have 6-8 vessels in each market in order to have a presence. If you have 1-2 vessels in a market, you are just a price-taker, not a price maker.”
With a much larger and re-configured fleet mix, Jaya would be able to spread its geographic risks by operating in, for example, the Middle East, Africa and Latin America. And of course, it’s more cost-efficient to operate a larger number of vessels in any market.
Jaya’s current fleet of 28 vessels are 65-60% chartered out in Southeast Asia and the remaining 30% in Middle East and West Africa. Jaya wants to boost its presence in the latter two regions, as well as enter the Brazilian, Mexican and Australian regions.
Shesh wouldn’t venture a timeline for Jaya's fleet to reach its optimal size but said that, to get there, the near-term focus is on optimising internal systems and processes, improving capabilities, and building and deploying the 10 vessels on order.
With a total building capacity of 9 vessels a year in its Singapore and Batam yards, Jaya would in due course weigh the choices of organic and inorganic growth of its fleet.
Photo by Sim Kih
Lots of headroom
Would Jaya be targeting to own high-end vessels?
“Ultimately every asset has to deliver a return. We are not elitists. We are happy to run dumb barges if they give us a good return. Having said that, what we are seeing is, the world is moving up the value ladder.”
Shesh added: “We need to understand the market, develop the fleet that gives us the best return. We could have a different fleet for Africa and a different one for Southeast Asia.”
The vessel specifications differ because of the water depth, currents, climate and other factors associated with the region.
“So a vessel operating on the west coast of India would be, say, 80 tonnes / 7200 bhp – it would be approved by underwriters to pull a jack-up rig. But in Africa, the same underwriters would require a 120 tonne / 10,000 bhp vessel to pull the same rig because of increased water depth, because of currents and so on.”
Hand in hand with its goal of owning a bigger fleet for charter, Jaya would also aspire to go beyond shipbuilding – to ship repair, fabrication and construction of modules, said Shesh.
“We have the right people, the right facilities and infrastructure. So far we have been focusing on only a very small area of what we can do.”
CFO Chong Chow Pin said: “We have a lot of headroom. We have to move step by step. We are not going for rapid growth – we want measured growth, sustainable growth. The world has become a quagmire – it’s no longer hard surfaces we are walking on and there is a lot of marshy land.”
Asked about private equity funds being the controlling shareholders of Jaya, Shesh and Chow Pin said that they have been ‘very supportive of what we do” and they are a “very engaged board” – and, to much laughter, “every time we cross a milestone, they give us a new one to reach.”
But, no, being funds, they cannot be expected to stay invested forever. In their own time, they will exit the company.
Meanwhile, with higher charter rates in the industry and corporate developments at Jaya, including a new US$150 m loan facility retiring Jaya's old debt and paving the way for the resumption of a dividend payout, Jaya has attracted the interest of fund managers.
Shesh said he has been meeting them here in Singapore and recently in the US. In addition, DBS Vickers has re-instated coverage of the stock with a 'buy' call and an 85-cent target.
Recent stories:
24 Dec: ANWELL, JAYA, STX OSV: Latest Happenings…
14 Nov: JAYA HOLDINGS: Strong 1Q results, more good news to come?
27 Oct: @ JAYA's AGM: Business transforming in the right direction
> For more on Shesh, the Jaya CEO, read this story on AsiaOne.
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