STI : 3,210.67
Price Target : 12-month S$ 0.90
Encouraging signs persist
• Sustained high fleet utilisation above 90% and improving day rates boost charter income in 1Q-FY14
• Newly delivered vessels have all been employed on long-term charters immediately
• Industry uptrend continues to support Jaya’s transformation to a charter income growth story
• Our BUY call and TP of S$0.90 is well supported by independent fleet valuations and healthy balance sheet
Another quarter of 91% utilisation. Net profit of US$7.6m was about US$1m short of our estimates, largely a result of higher than expected operating expenses. But we believe this is still a credible quarter, with core chartering net profit (excluding vessel disposal gains) up 15% y-o-y on the back of improved utilization and charter rates, amidst a gradual upturn in the OSV industry. Earnings were also boosted by the addition of two 5500 dwt PSVs during the quarter, which went on-hire on long term charters immediately on delivery. Average fleet utilization remained at 91% during the quarter, and chartering gross margin remained steady at 41% compared to 40% in 4Q-FY13, justifying the Group’s shift in focus to the long-term time-charter market.
Industry demand looking up. After securing long-term charters for its multi-purpose service vessel Jaya Privilege in Mexico and PSV Jaya Vigilant in East Africa, Jaya has not only spread its wings to new markets but also boosted the charter backlog to US$255m, securing revenue expectations for more than 2 years. Of the 7 vessels remaining in its legacy shipbuilding programme, another 4 will be delivered in FY14, of which the 16,000bhp iceclass AHTS Jaya Sovereign has already been sold. Management continues to see better demand for OSVs, supported by jack up and floater deployment in SE Asia, Middle East and West Africa, with the trend towards re-development of old fields and the continuing deeper water discoveries likely to drive demand, going forward.
Maintain BUY. We adjust our FY14/15 earnings estimates down by about 4%/1% to account for slightly higher operating expenses. Core chartering income for Jaya is still expected to grow strongly from about US$24m in FY13 to US$35m in FY14 and US$41m in FY15. Our TP – based on 1x FY14F P/BV – remains unchanged at S$0.90. Share price re-rating is well supported by independent fleet valuation estimate of US$567-595m and a debt free balance sheet.
Publish date: 01/11/13