Jaya Holdings

DMG & PARTNERS RESEARCH, Jan 28

AS we highlighted in the previous quarter, Jaya's strong chartering performance is suffering a 25 per cent drag by the under-utilised shipyards. We note that three vessels have had their delivery times delayed by 1-2 months, which will push back their contribution to Jaya's growth.

We applaud management's decision to become more transparent in revealing its contract coverage, which indicates US$25-28 million worth of firm and optional contracts for Q3-Q4 FY2014. Vessel utilisation - while a still-healthy 83 per cent in Q2 FY2014 - came off from 91 per cent in Q1 FY2014. Based on the contract coverage figures, maintaining these utilisation rates will be a challenge, but potentially attainable.

Customer exercises purchase option on anchor handling tug supply (AHTS) vessel: Management also revealed that a customer has exercised its option to purchase a 5,000 brake horsepower (bhp) AHTS vessel. Together with an expected 16,000bhp AHTS vessel sale, Jaya estimates a US$3 million profit from these purchases. While this boosts short-term profit, long-term earnings growth takes another hit.

Jaya is now trading at a 14x FY14F P/E premium and the stock is back to near book value, even though ROE is only 7 per cent. This valuation is supported by a high 5-6 per cent yield, representing a 66-79 per cent payout ratio. With slow mid-term growth and limited dividend upside, we feel that the stock is fully priced for a pro-shareholder outcome in the ongoing strategic review.

We prefer Nam Cheong for exposure to the OSV segment. We expect its share price to outperform over the next 12 months, as it is trading at 7x FY2014F P/E, with 25 per cent growth and 25 per cent ROE.

NEUTRAL