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Negative triggers dissipate.
We believe that the worst could be over with Mermaidbottoming out in terms of qoq earnings. Due to compelling valuations against BV,visible improvements in its subsea business and multiple catalysts from drilling, weupgrade Mermaid from Neutral to OUTPERFORM. Given higher utilisation rates, welower our FY11 net loss forecast by 8% and raise our estimate for FY13 by 114%. Aswe believe that losses could be contained, we raiseour target price to S$0.49, basedon 0.8x CY11 P/BV (previously S$0.41, based on 0.7x CY11 P/BV, its average since2009). We see catalysts from sustained improvement in subsea utilisation andcontracts for newbuild jack-ups.
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Visible improvements in subsea business.
Utilisation for 2QFY11 has climbed to54% vs. 28% for 2QFY10. Based on an order book of over US$100m, subsea shouldachieve above 60% utilisation for 2HFY11. In turn, we project that Mermaid will post itsfirst subsea gross profit in 3QFY11 after five straight quarters of losses.
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Seadrill’s recent participation in AOD enhances chances of securing drillingcontracts.
As over 90% of newbuilds in this cycle are built on speculation, Mermaidstands a better chance against other investors/speculators with Seadrill on board.Mermaid targets to secure contracts for its newbuilds by 1H12. This shouldsignificantlycatalyse its share price.
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Subsea fleet value limits downside risks.
As it is
trading at 0.6x CY11 P/BV, webelieve that downside risks are limited and see its share price supportedby value insubsea assets. Even if we exclude Mermaid’s drilling business, RNAV of its subseafleet alone is S$0.41/share, representing a 21% upside to its current trading price.
Financial summary
FYE Sep 2009 2010 2011F 2012F 2013F
Revenue (THB m) 5,209.9 3,476.4 4,755.6 5,621.3 5,879.1EBITDA (THB m) 1,509.6 354.1 1,027.7 1,686.6 2,005.7EBITDA margins (%) 29.0% 10.2% 21.6% 30.0% 34.1%Pretax profit (THB m) 863.1 (263.2) (470.3) 167.8 644.5Net profit (THB m) 714.5 (456.1) (560.3) 87.8 544.5EPS (S cts) 5.4 (2.5) (2.9) 0.5 2.8EPS growth (%) (39.0%) (146.1%) (17.3%) 115.7% 519.9%P/E (x) 6.3 nm nm 74.9 12.1Core EPS (S cts) 5.4 (3.4) (2.9) 0.5 2.8Core EPS growth (%) (39.0%) (163.4%) 14.6% 115.7% 519.9%Core P/E (x) 6.3 nm nm 74.9 12.1Gross DPS (S cts) 0.0 0.0 2.4 0.0 0.0Dividend yield (%) 0.0% 0.0% 6.9% 0.0% 0.0%P/BV (x) 0.5 0.5 0.6 0.5 0.5ROE (%) 7.4% (4.0%) (4.5%) 0.7% 4.5%Net gearing (%) 10.3% 4.5% 21.4% 12.2% N/AP/FCFE (x) (9.4) (5.7) (3.1) 15.5 7.0EV/EBITDA (x) 3.9 19.6 7.1 3.7 2.3% change in EPS estimates (7.6%) +3.2% +114.5%CIMB/Consensus (x) 0.93 1.02 1.12
Note: Per share data translated into listing currency at current fx spot rates, valuation methodology based on house forex forecastsSource: Company, CIMB Research, Bloomberg
Price chart Market capitalisation & share price info
Market cap S$267m/US$219m
Share price perf. (%) 1M 3M12M
12-mth price range S$0.49/S$0.30 Relative0.5 (12.0) (32.4)3-mth avg daily volume 0.3m Absolute1.5 (13.9) (29.2)# of shares (m) 785
Major shareholders%
Est. free float (%) 42.8 Thoresen Thai Agency57.1Conv. secs (m) None Thailand Equity Fund15.1Conv. price
0.20.30.30.40.40.50.50.60.6 Jul-10 Dec-10 May-110.000.200.400.600.801.001.201.401.601.80
Volume 10m (R.H.Scale) Mermaid Maritime PCL
Source: Bloomberg Source: Company, CIMB Research, Bloomberg
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