Logindo Samudramakmur FY13 Results In Line – Good Times Ahead

LEAD’s FY13 results were in line with our estimates
We see its strong earnings growth (+39% y-o-y) persisting in 2014 on its ongoing vessel expansion plans. Indonesia’s OSV sector remains at an early cycle and 2013’s strong industry earnings growth from cabotage is crystallising market visibility. We upgrade our IDR3,850 TP (from IDR3,450), implying 9.4x FY14F P/E – still at a 26% discount to its regional peers. Maintain BUY.

Positive close to 2013, bright future ahead
Logindo Samudramakmur (LEAD)’s booked FY13 revenue of USD59m (+73.1% y-o-y) and net profit of USD16m (+85.8% y-o-y) – in line with our expectations. We expect the strong earnings growth to persist this year on the back of the company’s 2013-2014 vessel expansion exercise, and we also expect LEAD’s net gearing to increase to 118% this year vs 2013’s 97.6%. To gear up during a bullish period is a wise move, in our opinion. Hence, with its relatively young fleet, lucrative margins and strong industry track record, these are all precursors of greater things to come for LEAD.

Strong industry growth
We expect our domestic offshore support vessel (OSV) universe to book a relatively strong net profit CAGR of 41.2% in 2011-2014. This is driven by the Government’s high oil & gas (O&G) investment allocation, and the cabotage regulation that allows Indonesian OSV providers to move into higher-tier vessel segments. We believe the high barriers to entry and the cabotage policy ought to keep vessel supply tight, thus supporting high charter rates and utilisation levels.

Upgrade TP to IDR3,850 (from IDR3,450), valuations still attractive
This upgrade implies a 9.4x FY14F P/E, which is still at a 26% discount to LEAD’s regional peers. We suggest that the strong sector growth and better industry visibility makes the re-rating justified. We do not expect the company to be a dividend play in 2014-2015, as we see potential asset growth as a priority. We also suggest that Indonesia is still at an early cycle in the offshore support industry. Thus, we opine that the country still has a long way to go before we see further vertical expansion in the domestic OSV segment.