News

According to a Bloomberg article on 17 May: (i) there could be a potential

delay of the sale of STX Corp’s 51% stake in STX OSV (STXO) and (ii) STX

Corp (parent company of STXO) may face liquidity concerns with Korea

Exchange Bank if the sale does not go through. STX Corp has issued a

public statement saying that the STXO sale process and talks with Korea

Exchange Bank are going well and that it is still committed to its plan to

sell W25 trillion of assets, which includes STXO.

Analysis

We think the views of investors who bought STXO for exposure to this

event may be affected by a delay in the stake sale. If the STXO stake sale

process is extended, STX Corp’s position in sale negotiations may be

affected by rising pressure to address its own debt / liquidity issues

(FY2011 net debt to equity ratio of 1.38X) in a timely way.

That said, we believe the above issues do not have any impact on STXO’s

fundamentals and see the share price decline yesterday as unjustified

against STXO’s strong fundamentals (we project 27% yoy increase in

STXO’s orders in 2013E and note that STXO continues to generate strong

cash flows and has a net cash balance sheet) and low valuations (2012E P/E

of 7.8X).

We also note that Och-Ziff recently increased its stake in STXO to 21% from

20% previously, which we think signals a key shareholder’s strong belief in

the underlying fundamentals of the company.

Implications

While the above news may be negative for share price sentiment, we

would see this as a potential buying opportunity given that the attractive

underlying fundamentals of the company are unchanged. Reiterate our Buy

rating on the stock.