Wintermar Breaking The Pedals

We expect 3Q14 earnings to be lower than the 2Q dragged by lower utilization rate which we expects below 70%. We see 1.) Major O&G projects are experiencing continous delays, 2.) More intense competition, 3.) Fall in oil price has led to a delay on earning’s reflection from its strong fundamentals. We downgrade call from to NEUTRAL (from BUY) with TP of IDR1,350 (implied 12x 2015 PER) as we cut earnings by 2014/15 earnings by 12%/20% respectively.

Should be a poor 2H
We expect 3Q14 earnings to be lower than 2Q’s USD5m due to unfavorable utilization rates (<70%) as well 2 vessel expansion delays. The unfavorable utilization rates are mainly driven by lowing utilization on the higher-tier ones. 4Q14 earnings might slightly picked ups compared to 3Q13 yet should be below 1h14 figures.

Earnings revision
Given our expectation on a poor 2H14, we cut 2014-15 earnings by 12% and 20% respectively. Given visble major O&G project to experience continous delays, we expect 2015 earnings to be not as bullish as we expected yet earnings would still grown by 31% y-o-y on higher utilization rate and vessel expansions.

Major O&G project delays
Chevron Indonesia recently finds The new oil reserved at Riau, estimated to be the largest oil source in Sumatra (no details provided). This has put a delayed focus on Chevron’s IDD project which is to be delayed untill the next year. Note that Wintermar has a pending project tender with them which we expected to be lucrative.

Competition rising, earnings visibility down
With competition rising in the market and OSV jobs-offered mostly on a very short-term bases (< 6 months), we see subsided earnings visibility for 2014-15. We see several players in the Indo-OSV market including Wintermar are seeking eyes on the new Diesel-Electric AHTS technology which are fuel-cost efficient. This should make competition tighter in the market. Long-term fundamentals remain strong as 2016 should be a strong year for the OSV market given many O&G project commencements, however visibility is too far-stretched for any conviction.

Valuation
We downgrade our call to NEUTRAL (from BUY) with TP of IDR1,350, implying 12x 2015 PER (using USD/IDR12,300 guidance). Wintermar is currently trading at 14% and 13% discount to its peers. We cut 2014-15 earnings by 12% and 20% on slower vessel expansion and lower utilization rates.