DMG, KIM ENG, Phillip Securities and SIAS Research reiterated their ‘Buy’ calls on Otto Marine after its 1Q2010 revenues surged 285.6% year-on-year to S$276.6 million, thanks to vessel construction milestones achieved during the quarter.
UOB Kayhian, however, maintained its ‘Hold’ call, and expects lower contribution from shipbuilding and repair in the coming quarters.
While there is concern over the shrinking order book, which slid from S$536.9 million as at 31 Dec 2009 to S$319 million as at 31 Mar 2010, the management is hoping to secure some large contracts, each larger than US$70 million in 2 to 3 months, according to the UOB Kayhian analyst, Stella Tan.
The analysts have a consensus target price of 58 cents for the integrated offshore marine player, 35% above its last close price of 43 cents.
Shipbuilding revenues jumped 277.7% to S$257.2 million due to progress of work on sophisticated offshore support vessels for external clients.
Gross margin for this segment, which includes repairs and conversions, decreased 4.7 percentage points from 19.4% in 1Q2009 to 14.7% in 1Q2010 mainly due a provision for a foreseeable vessel cancellation charged at the cost of goods.
Excluding the provision, segment gross margins remained stable at about 17% to 20%.
Ship chartering revenues jumped 141.9% to S$8.8 million due to additions to the offshore supply chartering fleet, full utilization of its offshore supply vessels and improved utilization of its tugs and barges.
Segment gross margins increased from 49.7% in 1Q2009 to 82.9% in 1Q2010.
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However, Reflect’s margins are expected to expand when it reaches a critical mass of 5 to 6 vessels, said executive vice president, Peter Jantzen.
Also, the management expects seismic charter rates, which are currently depressed at US$80,000 to US$90,000 a day, to increase.
Kim Eng analyst Eric Ong sees 1Q2010 as an exceptional quarter for Otto Marine, and believes that the higher margin chartering and geophysical businesses, rather than shipbuilding, will propel its next leg of growth.
Net profit attributable to shareholders rose 273.9% to S$24.5million in 1Q2010.
Otto Marine also recently raised S$100 million by issuing the first trance of a Medium Term Notes with a total value of S$500 million at fixed rates of 4.845%.
This allows the company to extend its average debt maturity profile, repay existing Indonesia bank loans which typically carry a higher interest rate of 12% to 14%. The remaining will be allocated to finance the expansion of its chartering fleet by 4 to 5 vessels.
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