Wintermar Fundamentals Remain Solid
Wintermar Offshore Marine (Wintermar)’s 1H14 earnings of USD13m (+11.4% YoY) made up 38%/40% of our/street targets for FY14. The underperformance was mainly due to higher-than-expected interest expenses and lower-than-expected third-party vessel charters. Still, we see fundamentals of the OSV industry remaining solid and projects being abundant going forward. Maintain BUY, with our TP at IDR1,610 (12x FY15F P/E).
Revenue from chartering unit drops
Wintermar’s 2Q14 revenue of USD42.0m declined 7.7% QoQ, driven by a would lower turnover of USD10.0Mn from It’s chartering segment (-41.8% QoQ). However, revenue from its own vessels grew to USD30.0m (+15.6% QoQ). Its 2Q14 own-vessel margin declined significantly to 49.3% vs 57.5% in 1Q14, given the lower utilization rate as there were several delays in government approvals for large offshore supplied vessel (OSV) contracts.
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Still, the company’s 2Q14 margin from charters was the highest ever, at 11.5% (1Q14: 8.8%), as many foreign-flag vessels are hunting for jobs in Indonesian waters. As a result, 3rd party charter rates increased. We expect Wintermar to downsize It’s chartering division – which has uncertain and lower margins – and focus on generating revenue from its own vessels, just like Logindo Samudramakmur (LEAD IJ, BUY, TP: IDR6,300) whose revenue is fully generated by its own vessels.
Solid EBITDA
Fundamentals remain strong, as its 2Q14 EBITDA increased by 6.1% QoQ to USD20.0Mn. However, Wintermar’s 2Q14 interest expensed surged 61.9% QoQ to USD4.0Mn as it grew its fleet by taking out loans, which also dragging down net profit by 31.4% QoQ to USD5.0Mn. Net gearing stood at 63% during the quarter.
Plenty of upside potential
We expect its utilization rated to pick ups from 2015 onwards, while it fleet continues to grow and it pursues lucrative projects. There is upside potential for its stock, as Wintermar’s market cap is now >USD500.0Mn and its net gearing is below 0.7x. Its early indication of a non-preemptive rights issue exercise (9% of shares outstanding) points to a healthy balance sheet and an ability to fund large oil & gas asset acquisitions should cabotage deadlines for 2014-15 be enforced by the Government. As fundamentals remain solid, we maintains BUY and a TP of IDR1,610 (12x FY15 target P/E). Cutting FY14 earnings by 5% on lower assumptions for It’s chartering segment and own-vessel blended utilization rate
Earnings revision
We decrease our 2014-15F revenue estimates by 10% and 7% respectively, given Wintermar’s exposure to the lower-margin chartering segment. A lesser exposure to chartering could boost its blended margin. We lower our FY14F earnings as we pared down our numbers for It’s chartering segment and trim our blended utilization rate assumption for its own vessels. Note that its utilization rated in 1H14 was at 73%, compared with 75% in 1H13.
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70% of Indonesia’s oil & gas resources are located in offshore waters, while Wintermar has operated on a wide scale and in a protected market at an early stage. We believe there could be upside surprises ahead, as the OSV industry is seen to be a continuously dynamic markets in Indonesia given its high exposure to exploration, development and production activities. 65% of Wintermar’s fleet is now high-value segments, which puts it in a strong position to serve the needs of the deepwater oil & gas industry.
