Wintermar Below expectation, Yet Has Sufficient Amunitions

3Q14 net profit reached USD5Mn (-1.3% QoQ), bringing 9M14 figure to USD18Mn (-4.7% QoQ), accounting to 64%/62% of ours and consensus FY14 target respectively which is below our expectation. We expect 4Q14 gross margin and net profit to pick ups QoQ on slightly higher utilization rated for its higher-end vessels yet inadaquate to reach our FY14 target. Hence, we cut earnings 2014-15 earnings by 10.6%/5.3%. Maintain NEUTRAL yet lowered TP to IDR1,270 (from IDR1,350).

P&L performance
3Q14 revenue increased 4.7% QoQ to USD131Mn driven by higher 3rd party chartered vessel (USD14Mn, +39.0% QoQ) and other services (USD4Mn, +126.9% QoQ) despite own-vessel revenue segments fells 13.2% QoQ to USD26Mn. Given the lower contribution from its own-vessels, the gross margin mixes was unpleasant, dragging 3Q14 gross margin to 39.7% from 49.3% in 2Q14, translating to a 3Q14 gross profit QoQ decline of 22.2% to USD13Mn. 3Q14 opex fell 21.4% QoQ which drags operating profit to USD10Mn, +22.4% QoQ).

Balance sheet remains healthy
Despite the aggresive vessel expansion last year (capex of USD90Mn) and the lower than expected blended utilization rate, 9M14 net gearing was able to soften to 50% from 54% in FY13. This is because Wintermar raised some equity through a placement and the conversion of its convertible loan into equity as to strengthen its balance sheets in a challenging 2H14.

Cut 2014-15 earnings by 10.6% and 5.3%
We cut 2014-15 earnings as we cut 2014-15 own-vessel segment blended gross margin to 48%/51% (from 54%/53% respectively) on lower than expected utilization rates (actual 9M14 only 70% vs expectation above 75%). Wintermar has been opening up to new markets such as Myanmar, Brunei and Bangladesh in addition to work in India, Malaysia, Thailand and Vietnam. Although overseas margins are lower, the contracts are part of Wintermar’s strategy to stregthen its international footprint.

Maintain NEUTRAL
We maintain our NEUTRAL call but lower our TP to IDR1,270 (from TP IDR1,350) with a target 2015 P/E of 12x. Post earnings cut, Wintermar is currently trading at 15.9x and 10.9x 2014-15 P/E. We cut 2014-15 earnings by 11% and 5% respectively.