Wintermar a Mixed Bag
Big purchases delayed until 2012, yet 2011 earnings intact
Based on our conversation with Wintermar Offshore Marine (WINS IJ), we expect the company to postpone the purchase of two high-end vessels in 4Q11 to 1Q12. These are anchor-handling tug supply-type (AHTS) vessels which enable WINS to command tariffs that are 20x higher than those for low-end vessels. We do not expect this to affect our earnings forecast for 2011. Instead, these two high-end vessels will lift WINS’ 2012 earnings, contributing about 30% to its total revenue for 2012, based on our calculation. We will adjust our model accordingly as soon as the company’s 3Q11 results are announced.
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3Q11 results preview
Management has yet to provide the earnings figure but expects a forex loss in 3Q11 on the back of the strengthening USD. Furthermore, its 3Q11 depreciation expense will be quite high with many new vessels expected to be delivered in 1H11, but this will improve its utilization rate. All in all, we expect no surprises in 3Q11.
Testing the down-cycle?
We learn from the management that a global economic downturn is not the main risk to WINS’ future earnings, which are largely less sensitive to oil price in the short term. Thus, an increase in oil and gas exploration, and production activities would benefit WINS amid an environment of depress exploration activities in the offshore blocks. This provides ample opportunities for domestic flagged-vessels in the oil and gas support vessel industry. Pertamina’s seriousness in focus on the upstream offshore businesses as part of efforts to support the government’s increased oil production targets of 950k barrels per day in 2012 is a positive development.
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Cabotage a strong upside catalyst
We see progress in its cabotage business given that numerous foreign vessels now have to renew their licenses every three months, despite having long-term contracts in Indonesia. Yet, the number of foreign vessels have risen in the short term to maintain utilization – 111 vessels in July 2011 compared to only 63 vessels in February 2010. Given WINS’ strong relationship with BP Migas and government regulators through its affiliation with the Indonesian Shipowners Association (INSA), we believe the synergies in common interest will likely follows through.
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Quality of service its core strength
Thanks to its emphasis on delivering high-quality services to its clients, WINs was able to: (i) raise USD30m in IPO proceeds for expansion, (ii) win many tenders (26 out of 42 tenders in 1H11), and (iii) obtain foreign bank loans at lower borrowed cost.
Valuation
WINS is currently trading at a 2011 PER of 9.1x and a 2012 PER of 7.5x respectively. Furthermore, the company will start to pay a dividend next year based on this year’s performance, providing a 2012 dividend yield of 2.2%. We have a BUY recommendation with a target price of IDR480.
