Logindo Samudramakmur Site Visit Trip to Batam
We attended Logindo’s site visit on 16 May at Batam to see its recent USD22.5m 8k hp anchor handling tug supply (AHTS) dynamic positioning (DP2) vessel purchase, which is the 2nd vessel purchase this year from its 4 new vessel full year target. This specifically well equipped, technologically advanced vessel is well designed to support offshore rig activities. With the current tight supply of high-tier AHTS vessels in the market, we see strong utilization rates ahead for the respective vessels.
Site visit trip
After arriving on Hang Nadim International Airport located in Batam, Riau Islands, Indonesia, we took around 1 hour drive to PT. Marcopolo Shipyard, a subsidiary of Marco Polo Marine (MPM SP; BUY; TP: SGD0.65) where Logindo bought the USD22.5m 8000 hp AHTS DP2 vessel from. The vessel is funded 70% by 5 years USD term loan and remaining 30% by internal cash.
What we observed?
From what we observed during the site visit, we get a sense that barriers of entry to this business is high given: 1.) Highly capital intensive as 1 AHTS 8k hp vessel can cost around USD16-23m. 2.) Technologically advanced and specially well designed vessels to cater the specific needs of O&G customers, 3.) Strict compliances required by O&G players such as DP licenses and safety requirement compliances. This type of business is different if compared to tug and barges in the coal industry where there it requires less capital and less compliance matters.
Still lack of AHTS supply in the market
As Indonesia’s massive O&G exploration activities are highly exposed to relatively more deeper waters, there is strong demand for higher-tier Offshore Support Vessels (OSV). Currently there are around 98 AHTS indonesia-flag vessels in the market, only 15% AHTS vessels are high-tier (>=8k hp ), whereas in Malaysia around 46% of total vessels are already higher-tier vessels.
Maintain our BUY call; 12x FY14 target PER
We maintain our BUY call (TP IDR4,900) with 12x FY14 target P/E premised on sector’s strong growth (a multi-year boom) and better industry visibility. We suggest liquidity would improve given increasing investor’s knowledge and appetite to the high potential growth of the Indonesia’s OSV industry.
Logindo’s boss appointed as Head of Iperindo
The president director/founder, Eddy Logam, was recently appointed as the Head of the Indonesia Shipbuilding and Offshore Association (Iperindo). Eddy Logam emphasized to medias that the government should consider the importance of the shipbuilding industry in Indonesia as a strategic industry and proposed on several tax and import tariff incentives for ship building raw materials in order to make the industry competitive.
We sense that Logindo is taking the shipping business very seriously, not only focusing solely on its Offshore Support Vessel business, but also focusing on strengthening the upper value chain which is ship building business.
