Thursday, 14 August 2014

Mermaid Marine

Kim Eng on 14 Aug 2014

  • 3QFY9/14 PATMI fell short on reduced contributions from MTR-2, in workover mode.
  • Strong operating leverage behind 13.6-ppt QoQ jump in operating margins.
  • Turnaround intact. Maintain BUY. TP raised to SGD0.60 from SGD0.59, now at 13x FY9/15E P/E.
MTR-2’s minor drag
3QFY9/14 PATMI of USD13.0m (+21.4% YoY, +151.7% QoQ) missed expectations marginally due to lower contributions from one of its tender rigs (MTR-2). In workover mode and earning lower rates, the rig is expected to resume drilling in Oct 14, after obtaining permits. 9MFY9/14 PATMI recovered to USD31.3m (+507.4% YoY), forming 65% of our FY9/14E forecast. 3Q operating margins spiked13.6ppts QoQ to 10.8% on higher revenue, reflecting strong operating leverage.

Turnaround intact
This quarter’s strength contrasted with its seasonal weakness last quarter. We expect a further uptick in 4Q. FY9/14E-15E revenue should be well covered by its USD750m orderbook as at 1 Jan 2014. Associate AOD continued to contribute steadily, to the tune of USD7.4m this quarter. We expect further operating-margin improvements from better utilisation in the short term. Longer term, new assets (two tender rigs and a DSV) to be delivered in 2016 should allow Mermaid to scale up its operations. Maintain BUY. We cut FY9/14E earnings by 5% for lower MTR-2 contributions and delayed contributions from a chartered-in vessel, Mubarak Supporter. We roll over to 13x FY9/15E P/E, pegged to its historical mean (from 14x FY9/14E). This yields a higher TP of SGD0.60 (from SGD0.59). Stock-price underperformance is an opportunity to accumulate as Mermaid’s turnaround is intact.

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