Logindo Samudramakmur a Strong Contender

Logindo (LEAD) is to book an 83% net profit CAGR for the three years to 2014, spurred by its strong fleet expansion to higher-tier vessels. Its relatively young fleet age, lucrative margins and strong industry track record are precursors of greater things. We initiate coverage with a BUY and IDR3,450 TP, implying an 8.5x 2014 P/E and 0.2x PEG. Despite Indonesia’s headwinds, we believe LEAD is a way to finding alpha in the market.

Background
LEAD was founded in 1995 by the Logam brothers. In 2005, the company started acquiring vessels and operating in Indonesian waters, shielded by the cabotage policy put in place by the Government that same year. LEAD has been providing outstanding service to Total E&P Indonesie for 15 years – initially supplying services to the latter’s tugs and barges but, along the way, providing higher-end vessel services to upstream oil and gas (O&G) offshore blocks.

Outlook
Despite the headwinds Indonesia faces and the Government initiatives implemented to steer the economy towards a more stable footing, we expect our domestic offshore support vessel (OSV) universe to book a relatively strong net profit CAGR of 42.8% in 2011-2014. This is driven by: i) the Government’s high oil & gas (O&G) investment allocation, and ii) cabotage regulation that allows Indonesian OSV providers to move into the higher-tier vessel segments. With respect to supporting local upstream offshore O&G activities, we believe that Indonesia still has a long way to go in terms of further vertical expansion in the domestic OSV sector.

Latest development
We expect LEAD to allocate a capex of USD164m from 2014 to 2015 to purchase mid- and high-tier vessels, in order to grow its fleet to 69 vessels by 2015, from 64 vessels in 2014. We expect it to command a higher blended tariff mix when more higher-tier vessels are added to its fleet.

Valuation
We estimate its FV at IDR3,450, an 8.5x implied P/E for 2014, which is a 40% discount to its peers (with a market cap below USD400m) which are trading at an 14.3x average.