STX OSV

DBS GROUP RESEARCH on June 18 2012

TWO wins in a row: STX has secured two orders worth approximately 1.8 billion Norwegian krone (S$383 million) for sub-sea construction vessels and a PSV (LOI stage), raising FY12 YTD order wins to 6.1 billion Norwegian krone, forming 61 per cent of our full-year expectations. Visibility is enhanced at 1.5x book-to-bill with an orderbook estimated at 17 billion Norwegian krone by end-Q2 FY12.

Beneficiary of recovery in sub-sea market: STX OSV is a front-line beneficiary of the recovery in the sub-sea market, which had suffered a setback due to the global crisis in 2008. This is the fifth sub-sea vessel contract it has secured in the past six months. Despite the ongoing uncertainties in Europe, leading to funding risks, we believe the fact that STX OSV is able to secure such projects from European clients is indicative of the buoyancy of the sub-sea and offshore markets.

Recent price weakness triggers buy opportunity: Recent weakness in the share price, on the back of macro worries over the euro debt crisis and the delay in divestment of the stake in STX OSV by its parent, offers buying opportunities. Our target price (TP) is unchanged at $2.00, which is pegged to 11x blended FY12/13F PE. The stock also offers decent FY12 dividend yield of 4 per cent. 
BUY