OSK-DMG analyst Lee Yue Jer has been prolific in writing insightful reports on the shipping industry. Here are 2 of his latest, which were delivered yesterday and today :
Bucking the trend with a premium placement
Technics Oil & Gas announced that it will place 10.7m shares to Eversendai Corporation Bhd at $1.05 per share, which is a 2% premium to yesterday’s average trading price.
Bucking the recent trend of placements at discounts, this indicates Eversendai’s confidence in Technics’ prospects and attractive valuation. We maintain our Buy call with a lowered TP of $1.15.
Getting closer to 20%. With this placement, Eversendai will now own 40.3m shares in Technics Oil & Gas, bringing its stake up to 17.96% of the enlarged share capital. Eversendai now needs to purchase another 4.6m shares on the open market to begin equity accounting of their new associate and to likely acquire a board seat.
Good investment for Eversendai. Though it is paying a slight premium, this investment comes with triple benefits: i) 5.7% dividend yield; ii) equity accounting of Technics’ profits improving their bottom line, and; iii) entry into the lucrative oil & gas industry with a reliable partner. Their willingness to pay a small premium, compared to other placements recently that went at discounts, indicates their confidence in Technics’ prospects and attractive valuation.
Not bad for existing shareholders too: More cash to support the dividend. Should management decide that the $11.2m inflow is in excess of cash required, a special dividend may be declared or Technics may buy back the shares on the open market. This is in line with management’s past behaviour – FY10-FY12 saw capital returns in the form of 10.5¢, 12.0¢, and 8¢ dividends in addition to share buybacks. This provides upside to our dividend expectation of 6¢ for this year, which we maintain for now until more clarity emerges.
Maintain Buy with lowered TP of $1.15. Maintaining our peg to 12x FY13F EPS, our TP is reduced to $1.15 as a result of this placement. We continue to like Technics for its steady growth (9% EPS CAGR to FY15F), high returns (ROE 32%, ROIC 37% in FY13F) and high dividend yield (5.8%).
It IS a Merry Christmas!
Nam Cheong announced that it has sold three vessels – a 5,000dwt PSV and two 5,150bhp AHTS – for a total value of US$56.4m. This brings the total number of vessels sold this year to a record 21, with a record gross order book of RM1.45b. We maintain our Buy call with a TP of $0.30.
But no more 5,150bhp AHTS available for 2013? Astute investors would notice that Nam Cheong just pulled off a small miracle – selling the two AHTS vessels for 1Q13 delivery when all the small AHTS for 2013 have already been sold since November this year.
Management clarified that the original buyers agreed to take vessels for delivery in 2014 and to give up their current 2013 orders to Icon Offshore. (See shaded lines in Figure 1.)
However, lower FY12F PATMI due to delay of 12,000bhp AHTS sale. With these three vessels sold, the only ship left in this year’s shipbuilding programme is the 12,000bhp AHTS whose possible non-sale we flagged out in our Sep-12 report. We understand that there are some variations on the construction, pushing delivery out to 2013. Because of this, our FY12F PATMI falls to RM133m from RM147m, but this still represents a 43% EPS growth from FY11.
Fast-moving inventory. Nam Cheong has already sold 9 out of the 19 vessels scheduled for delivery in FY13F, and with these sales four out of our forecast 20 vessels for FY14F have already been sold. Nam Cheong is keeping up a very strong order momentum.
Valuation – Maintain BUY with a TP of S$0.300. With the year essentially closed, we roll our valuations over to 8.5x FY13F EPS for a TP of $0.300, which is a very conservative multiple for a company growing at a 28% CAGR for the next three years.
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