WINS The Game
INVESTMENT MERITS
40 years of experience in the industry delivering high standards
Upside risk supported by the proposed cabotage principle
Vessel expansion into higher value segment
Reputable international clients with long-term contracts
Currently trading at 8.1x 2011 PE, 59% discount to the sector
COMPANY PROFILE
Established in 1970, Wintermar Offshore Marine (WINS) operates offshore support vessels for companies involved in oil & gas exploration and production (E&P). In 1995, WINS won its first tender from Chevron, one of the world’s largest integrated companies. Since then, the company has embodied high standards and attained renowned quality certification. WINS offers additional services (heterogeneous) such as providing catering, crew employment and training so as to become a one stop service company.
As a result, WINS has been able to maintain good long-term relationships with its clients. As at 31 December 2010, WINS has 59 vessels with wide range of types such as tugboats, oil barges, landing craft, crew boats, fast utility vessels, anchor handling tugs, diving support vessels, harbor tugs and platform supply vessels. WINS’ major clients include globally exposed oil & gas companies such as Chevron, Exxon Mobil and Conoco Phillips.
KEY HIGHLIGHTS
Cabotage principle presents opportunities
WINS’ vessel expansion is part of the company’s strategy to ride on the momentum from the potential regulations related to the cabotage principle, which may bar foreign-flagged vessels from operating in Indonesia’s coastal waters. It is worth highlighting that most of WINS’ competitors would primarily be foreign vessels in the high-end market.
Fetching higher tariffs by adding new vessels
WINS plans to purchase 11 vessels this year, where 4 vessel purchases have been booked for 1H11. This would enable WINS’ to command higher rates to its customers, leading to higher revenues. WINS’ strategy is to increase the proportion of new mid & high end vessels as these command higher rates of up to USD18,000, which can be 5x to more than 20x higher than those of old vessels. The higher rates should inflate WINS’ revenue going forward. Furthermore, WINS has a relatively young fleet averaging 8 years, which makes the vessels more reliable and cost efficient.
WINS is prudent in terms of safety, as proven by its focus on safety management by obtaining domestic and international certification such as from International Ship and Port Facilities Security Code (ISPS) and American Bureau of Shipping (ABS) and the recent Integrated Vessel Operational Management certification which is certified by Lloyds Register Quality. This shows that WINS has attained the minimum required standard to be an oil contractor to major international oil & gas companies such as Chevron, Exxon and Conoco Phillips.
Robust oil demand equals more intense upstream activities
WINS is a strong player in the domestic market and operates vessels in Thailand and India. Oil production demand is a catalyst to its earnings growth as higher oil production should translate into heightened upstream activities. This would be a good for WINS since Indonesia’s Supervisor & Controller for Oil & Gas Upstream Activities (BP Migas) is targeting to crank up oil production to 970k barrels per day this year, up from last year’s 954k.
COMPANY REPORT CARD
ROAE. Return on average equity pre-IPO in 2009 was 22%, and then declined to 14.5% in 2010 due to the USD340m IPO proceeds which increased equity proportion.
Management. The management has vast relevant experience in the vessel industry. The Commissioners have more than 68 years of total relevant experience and Board of Directors have 89 years of relevant experience combined. The strong management team comprise of working experience backgrounds from domestic and regional committing to high corporate standards.
Dividend. Given its expansion mode, we do not expect WINS to pay any dividend for the time being. However, a 20% dividend payout should be rewarded based on this year’s strong earnings.
RECOMMENDATION
Maintain a BUY. Our TP for WINS at IDR480 is based on a targeted 2011F PE of 12.0x, which implies a 39% discount on the industry average. Our TP provides an attractive 48% upside potential. We like this stock mainly because of its strong 2011 earnings growth (+36.7% y-o-y) and its upside risk from the implementation of cabotage regulations this year which enables WINS to garner a bigger slice of the market.
