Logindo Samudramakmur In Line; Great Years Ahead

Following Logindo’s (LEAD) FY13 results which were in line with our expectations, we expect strong earnings growth (+39% y-o-y) to persist in 2014 on the back of vessel expansion in 2013-14. We believe that the Indonesia OSV industry is still at an early cycle and last year’s strong industry earnings growth from cabotage makes industry visibility to crystallize. We upgrade our TP to IDR3,850, implying 9.4x 2014 PER, a further re-rating still at a 26% discount to its peers. BUY.

Positive close in 2013; Bright years ahead
LEAD’s FY13 revenue and net profit amounting to USD59m (+73.1% y-o-y) and USD16m (+85.8% y-o-y) were in line with our expectations. Following the FY13 financial wrap, we expect strong earnings growth to persist this year on the back of vessel expansion in 2013-14. We expect LEAD’s net gearing to increase to 118% this year compared to 97.6% in 2013, which we see as a wise move to gear up during a bullish period. Equipped with its relatively young age fleet, lucrative margins and strong industry track record are precursors of greater things to come.

Strong industry growth
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 41.2% 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. We believe the high barriers to entry and cabotage policy should keep vessel supply tight, thus supporting high charter rates and utilization levels.

Upgrade TP to IDR3,850; Valuation still attractive
This implies to a 9.4x implied PER, which is still at an 26% discount to its peers. We suggest that the strong industry growth, better industry visibility makes the re-rating justified. We do not expect LEAD to be a dividend play at least in 2014-15, as we see potential asset growth in priority. We suggest that Indonesia is still at an early cycle in the offshore support industry, thus we see that Indonesia still has a long way to go for further vertical expansion in the domestic OSV sector.