Wintermar Stellar 9M13 Results

WINS posted stellar 9M13 net profit of USD18m (+26.5% y-o-y), beating our expectations at 79%/80% of our/consensus estimates respectively. Such robust core earnings growth since its IPO is a re-rating catalyst, in our view. We increase our 2013/14 earnings by 1%/11% respectively, as WINS has raised its capex estimates to USD90m (+80% above our conservative projection) for vessel expansion this year. We raise our TP to IDR740 (from IDR640) with a BUY call.

Stellar 3Q13 results
3Q13 revenue increased 14.3% q-o-q, with own vessel contribution-to-total revenue rose to 55.3% from 54.4% in 2Q12. This lifted gross margin slightly to 32.7% from 31.7% in 2Q13. Operating expense surged 61% q-o-q largely on higher employee costs following management’s strategy to boost operational capability to take on high-value vessels. This brought 3Q13 operating margin down to 26.2% vs 27.1% in 2Q13. We upgrade our 2013/14 earnings by 1.3%/11.3% respectively following the stellar results (see next page for details).

Fleet expansion
WINS’ 9M13 capex reached USD58m and management expects additional capex of USD32m in 4Q13. The total USD90m capex will be fully used for its fleet expansion as it added 12 vessels this year, all of which had been secured. Given stronger-than-expected operating cash flow, its total debt in 9M13 was fairly reasonable at USD120m, bringing net gearing to 59.3%, which we deem relatively healthy compared to its peers in the industry.

Cabotage proven positive
Since the implementation of the cabotage law on mid- to high-tier vessels from Jan 2013, WINS has capitalized on the opportunity by adding several new vessels in efforts to capture the foreign-flag vessel market share. The cabotage has also led to firmer rates across the high-value segment of the market compared to global rates.

We are positive with the Indo OSV sector in the short & long term perspective as it enjoys the cabotage momentum as well as abundant potential OSV projects in the offshore O&G blocks. Cheap valuation with PEG below 1x; BUY. We raise our TP to IDR740 (from IDR640), implying an 8x 2014 P/E (a 42% discount to the regional OSV sector), following our earnings upgrade. BUY.