Mitrabahtera Segara Sejati, Strong coal deliveries

We cut earnings by 4% and 3% for 2013 and 2014 respectively mainly due to our lower than expected fee per tonnage assumption. Despite foreseeable contract fee re-negotiations by customers post 2014, we are of the view that MBSS should be able to have vessel expansion in 2014 as more coal volumes would be delivered as a compensation given by its long-term customers. We lower our TP to IDR1,400 yet maintain our BUY call as it still provides attractive upside.

Trimming our assumptions
We cut down our fee/tonne assumption for its tug & barge division by 8.7% and 20.8% respectively for 2013 and 2014. We also cut our fee/tonne assumption for its floating crane (FC) division by 9.5% and 18.1% for 2013 and 2014. On the volume front, we increase our aggregate tug barge and FC volume delivery assumption by 9% and 27% for 2013-14. We upgrade our 2014 capex assumption by 14% amounting to USD40m as new contracts with more attractive rates becomes visible. All in all, we lower our earnings by 4.4% and 3.2% for 2013 and 2014 respectively.

Sufficient backlog to secure earnings
9M13 backlog amounting to USD318m should provide a strong cushion for 2013 and 2014 revenue. Yet there is potential risk of less favorable contract re-negotiations from miners in 2015. As MBSS is serving in a fragmented industry, risk of downward pressure on fee/tonne charged to its customers is highly imminent.

Given its strong relationship and solid reputation with its customers, we are of the view that more delivery volumes is expected to come in 2014 and 2015 as to compensate the lower charges. Thus we expect capex allocation of USD40m in 2014 for vessel expansion. Furthermore, MBSS has diversified clientele to serve which reduces its concentration and idle capacity risks.

Cheap valuation, premium dividend offering
With idle cash of USD30m (as of 9M13), we suggest a 25% dividend payout for 2013 earnings, which translates to an attractive 2014 dividend yield of 6%. Despite the mild earnings cut, MBSS is still currently trading at a very cheap valuation at 4.1x and 3.7x 2013-14 PER respectively. We lower our DCF based target price to IDR1,400 (from IDR1,500) yet maintain our BUY call as we cut our earnings assumption for 2013 and 2014.