Wintermar a Positive Step
Wintermar Offshore Marine (WINS) plans to have a non pre-emptive rights issue of convertible bonds and ordinary shares totalling 340m shares, or 9.56% of its enlarged equity. The convertible bonds will raise IDR95bn (IDR500/share; 190m shares) while the new shares will raise IDR69bn (at least IDR461/share; 150m shares). The total proceeds of IDR164bn represent 12.8% of the company’s enlarged equity.
The 3-year convertible bonds carry a fixed annual interest at 5% before conversion into equity. WINS said the proceeds would be used to expand the company’s fleet from 2012 to 2014. It is worth noting that WINS added 13 vessels costing USD70m in 2011, boosting its fleet to 67 vessels. WINS will hold an EGM on 26 June to obtain approval for the plan.
Our Take
This is in line with our expectation that WINS will resort to other channels to raise funds besides bank borrowing. We believe that the proposed rights issue is positive as it will enable WINS to capitalise on the cabotage momentum and tap on opportunities to buy mid- to high-end vessels to cater to the demand from oil & gas projects in the offshore blocks.
Scenario analysis
Should this plan materialise, WINS will have to bear IDR45bn in interest expense a year based on our calculation, which could compress our net profit assumption to IDR187bn (-9%) and IDR229bn (-14%) respectively for 2012 and 2013. Following the net profit decline from higher interest expense, we provide two scenarios undertaken regarding the dilution of shares:
Scenario 1: WINS shares would be diluted based on its normal rights issue portion excluding the convertible bonds as the convertible bonds would be converted 2 years after the issuance. Thus, with 150m new shares (4% of total outstanding shares), 2012 and 2013 EPS would decline to IDR51/share (-12%) and IDR62/share (-17%) for 2012 and 2013. This translates to 8x and 7x 2012-13 PER.
Scenario 2: WINS shares would be diluted based on its total non-preemptive rights issue plan amounting to 340m shares, which brings EPS to IDR48 (-17%) and IDR59 (-21%) for 2012 and 2013. This translates to 9x and 7x 2012-13 PER.
WINS is currently trading at 7x and 6x 2012-13 PER, which is still relatively cheap compared to its peers. We maintain our earnings forecast at this current juncture and will revisit our model. We maintain our BUY call with TP IDR690.
