- 1Q12 below on lower revenue, weaker margins and higher admin
expenses - Cut FY12/13 by 11%/4%; spot charters present earnings risk while
higher admin costs erode profitability - Downgrade to HOLD, TP cut to S$0.43
1Q12 below.
CH Offshore 1Q12 PATMI of US$6.4m (-11% y-o-y, -24% q-o-q) was below expectations. Revenue fell 14% y-o-y /7% q-o-q to US$12.3m on a smaller fleet, as CH Offshore had disposed 3 vessels to its associate in FY11 to comply with the Indonesian Cabotage Regulations. Gross margins also weakened to 53.3% (-2.6ppt y-o-y; -10.8ppt q-o-q), mainly on lower revenues against certain fixed overheads, while its SGD denominated admin expenses rose to US$1.1m (+41% y-o-y), largely on the back of a weaker USD/SGD, leading to overall earnings weakness.
Well-positioned for recovery in OSV market, but higher opex to delay
earnings recovery; FY12/13F cut by 11%/4%.
We believe that CH Offshore remains well positioned for a recovery in the OSV market, given its long operating track record and its young fleet of predominantly deepwater capable AHTS. However, in the near to medium term, three vessels on spot charters continue to present earnings risk, while higher admin expenses on persistent USD weakness would erode profitability. As such, we cut our FY12/13F by 11%/4%, factoring in lower utilization rate assumptions for vessels on spot charters and lower GP margins on relatively high operating leverage.
Downgrade to HOLD; TP cut to S$0.43.
Our TP has been correspondingly reduced to S$0.43, still pegged to 9x FY12 PE. Since we upgraded CH Offshore to BUY in August, the counter has generated a total return of 9.7% (capital gains + final DPS of 2.0 Scts). Current valuations are not rich (7.4x FY12PE, 0.8x P/BV) and should be supported by relatively attractive and sustainable dividend yield of 7.5% and estimated RNAV of S$0.57. However, we see limited catalysts for the counter. Key risks include potential earnings downside with 3 vessels on spot charter and delays in customer payments. As such, we downgrade CH Offshore to HOLD, with limited upside to our revised TP.
Stock Trader’s Almanac 2012
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