Logindo Samudramakmur A Solid Bottom Fishing Choice

3Q14 results highlights
3Q14 revenue declined 8.4% q-o-q on lower utilization on low-tier vessels and no new vessel expansion coming in in 3Q14. 3Q14 cost of revenue spiked 11.5% q-o-q mainly on crew & maintenance/docking costs dragging 3Q14 gross margin to 42.3% vs 52.6% in 2Q14. Given higher economies of scale from fleet expansion, 3Q14 opex to sales ratio fell to 8.8% from 9.6% in 2Q14. Logindo incurred other income of USD1.7m from a sale of its low-tier vessel.

Earnings revision
We cut earnings by 6.5%/5.4% for 2014-15 mainly on slower vessel expansion and slightly lower overal utilization rates for the low-mid tier (non-AHTS) vessels. We lower our 2014 capex assumption to USD66m (from USD82m) and maintain our USD82m 2015 capex. Logindo currently has 60 vessels (added two 8k hp AHTS and sold one low-tier this year) and we expect another one (AHTS 8k hp) coming in 4Q14.

Higher earnings visibility amid tougher competition
We like Logindo’s two long-term contracts obtained this year (8k AHTS – 2 years contract + 12k AHTS – 3 years contract) which could warrant a USD14m secured time-charter revenue next year (15% to FY15 revenue target). We expect several O&G projects on Logindo’s pipeline should lead to capex translation for Logindo. Competition may be tighter at this current stage and fuel-efficent OSV technology (eg; electrical-diesel AHTS/PSV) is expected to come in the next 2-3 years. However we believe the pie is still big especially for reputable players such as Logindo.

BUY, upside aplenty
Logindo is currently trading at 10.9x/7.6x 2014/15 PER, a 37.8%/37.5% discount compared to its peers. We lower our TP to IDR6,200 (from IDR6,300), with a target 2015 P/E of 12x, suggesting 55.6% to current price. Despite 9M14 revenue contributing 67% to our FY14 target due to lower than expected in vessel expansion, bottom line able to reach USD17m (+53.0% y-o-y), accounting 75% to our FY14 target.

This was helped by its low-tier barge gain sales and lower than expected interest expense on a slowdown capex. We believe the share price (-19.8% m-o-m) has been overly punished. With recent obtained LT contracts & potential projects on the pipeline, we reiterate our BUY call despite earnings cut.