Logindo Samudramakmur (LEAD IJ, BUY, TP IDR4,900): 1Q14 results review: 1Q14 In Line

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Logindo Samudramakmur (LEAD IJ, BUY, TP IDR4,900): 1Q14 results review: 1Q14 In Line

1Q14 net profit rose to USD6m (+9.6% q-o-q, +62.2% y-o-y), accounting for 25% of our FY14 estimate. Looking ahead, we expect more contributions from other customers besides Total E&P. Logindo has signed a two-year long-term contract with Pertamina Hulu Energi – a sign of better fleet contracts earnings quality. We raise our TP to IDR4,900 with a 12x FY14 target P/E, premised on the sector’s strong growth and better industry visibility.

       1Q14 highlights. 1Q14 revenue reached USD18m, up 6.5% q-o-q, driven by its own vessel revenue. Gross profit margin fell to 52.2% vs 56.6% in 4Q13, given the lag time between vessel purchases and the operating time. This causes a slight increase in depreciation and crew cost, as well as higher fuel cost component, given its slight exposure to spot charters. However, given the advantage of economies of scale arising from its vessel expansion to higher-tier vessels, its opex to sales ratio fell to 9.3% in 1Q14 from 13.7% in 4Q13, bringing operating margin to 42.8% in 1Q14 from 43.0% in 4Q13.

       Most projects coming beyond Total E&P. We could see that Logindo Samudramakur (Logindo) is spreading its wings to other oil and gas (O&G) contractors besides Total E&P. One such significant customer is Pertamina Hulu Energi (PHE), evidenced by revenue from the same rising 159.0% y-o-y in 1Q14.

       Arrival of two new vessels. Logindo has purchased two anchor handling tug supply (AHTS) vessels YTD. Both are 8,000 horsepower (hp), serving Total E&P and Pertamina Hulu Energi, with capex for both vessels worth USD40m. We expect two other vessels to arrive later in mid-2014, bringing its total capex for this year to USD80m.

       Upgrade TP to IDR4,900; BUY. We raise our TP to IDR4,900 (from IDR3,850) with a 12x FY14 target P/E (vs 9.4x), which is on par with Wintermar Offshore Marine (WINS IJ, BUY, TP: IDR1,200) premised on the sector's strong growth (a multi-year boom) and better industry visibility. We believe that domestic investors’ knowledge regarding the high potential of Indonesia’s offshore supply vessel (OSV) industry has increased compared with the previous years, hence we believe that liquidity on these stocks could improve.

Best regards,

RHB OSK Indonesia Research Institute

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