Wintermar Long-term Outlook Remains Bright

Wintermar Offshore Marine (WINS) remains attractive although we have seen the recent negative sentiment from the BP Migas which will be taken over by the Ministry of Energy & Mineral Resources (ESDM). WINS is currently trading at 8x and 7x 2012 -13 PER.

Our take regarding the BP Migas takeover
WINS contracts are signed with oil companies and not with BP Migas, therefore existing contracts are still valid. For future projects that have not been awarded or those which the tenders have not yet been announced, there is very likely to be delays until more clarity emerges on the practical aspect of implementing this decision by the Mahkamah Konstitusi.

It is worth noting that oil and gas is a key priority of the Indonesian government and is critical to the state budget, thus we expect this to be given a very high priority so as not to disrupt the state revenues and the ongoing development of this critical resource. We expect business as usual to existing contracts for WINS. Note that 30 September 2012 contract value is at USD264m.

Outlook still positive
The big picture outlook for oil and gas still looks very positive because of the country’s great need for increased sources of oil and gas to support the demand growth and reduce the government subsidy that is weighing on the state budget. The activity in offshore oil and gas has been primarily in the exploration segment, which has resulted in shorter contracts as new players are actively drilling exploration phase is characterized by shorter term contracts compared to production contracts.

9M12 comments
Although 9M12 revenue declined 2% y-o-y, gross profit managed to increase 20% y-o-y as the portfolio composition changed quite significantly. Note that WINS has 2 revenue sources which is from owned vessels which has around the 45% gross margin level and 3rd party chartered vessels which has a very thin margin of ~3%. By this, gross margin in 9M12 has been boosted to 29%, higher compared to 24% in 9M11. Meanwhile EBITDA increased 27% y-o-y. Given the company’s capital intensive in nature, net gearing of 52% in 9M12, which is expected in our view.

Valuation
We lower our target price to IDR640 (from IDR690) and maintain our BUY call with an implied target PER of 9x as we lower down our earnings and take factor in the uncertainty situation of the BP Migas take over.