Excerpts from analysts' reports
Voyage Research says Otto Marine (7.2 cents) has an intrinsic value of 11.6 cents
Analyst: Ng Kian Teck
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 Yaw Chee Siew (in blue tie), executive chairman of Otto Marine, and Garrick Stanley (extreme right), CEO, at a recent vessel launch in Batam. NextInsight file photo.
Otto Marine Ltd (Otto) announced two positive developments this week.
Firstly, the company is exploring strategic options to develop its subsea operations business, which include a potential listing on the Singapore Exchange.
Secondly, the company secured A$57 million ($66.43 million) contracts for two of its 16,300 bhp anchor-handling tug supply vessels.
The first news will help Otto to secure new funding to grow the subsea business and rerate the company's valuation.
The second news reflects the buoyant chartering market and provides greater visibility to our chartering forecast. The chartering news is a positive development.
The buoyant chartering demand prompted us to rerate our 20 to FY2016F profit after tax (PAT) upward. With that, our model now suggests an intrinsic value of 11.6 cents.
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Growing the Subsea Business: This division currently has three vessels, two of which are fully owned and one is 50% owned. In 2Q, the three vessels generated US$10.1m revenue and
US$3.8m gross profit – we project FY14F PAT to be around US$5m and FY15F PAT to be around US$14m.
These three vessels were acquired from external parties and have an effective asset value (taking into account the ownership) of about US$120m and effective borrowing of about US$50m.
Based on the recently listed PACC Offshore Services and Pacific Radiance average P/B of about 1.8X, Otto’s subsea business may be worth about US$162m (assuming US$20m working capital) or approximately 12X FY15F P/E or >65% of Otto’s current market capitalization.
The actual book value may be higher as we did not include the addition of more vessels.
We like this move, if it materializes, as it will enable the company to secure new funding and grow the business further.
It also helps to revalue the company’s assets and suggest that the company may be worth more, especially the chartering business which has approximately 61 vessels.
The chartering news is a positive development and the company now has more than US$500m worth of chartering contracts. The buoyant chartering demand prompted us to rerate our FY14F to FY16F PAT upward. With that, our model now suggests an intrinsic value of S$0.116.
Recent story: OTTO MARINE: Chartering fleet improvements paying off
