by Kim Eng Research (23 July)
CH OFFSHORE (CHO) has been carrying out a series of disposals and purchases over the last two years to revitalise its fleet and expand its capabilities to operate in deeper water. With its renewed fleet, CHO is in a sweet spot to capture this oil and gas (O&G) offshore sector upswing.
We estimate that CHO will gain US$12 million from the disposal of the last four vessels built before 1984, which will be accounted for by FY2009. As of FY2010, the group will have a relatively young fleet of 15 vessels, all less than 10 years of age, far lower than the global age of 25 years for anchor handling tug supply vessels.
Its total capacity will be boosted by 56 per cent to 136,306 brake horse-power. Net gearing will remain at a low of 10-20 per cent after financing for the newbuilds. We estimate that the Ebit contribution from its total fleet will be US$54 million by 2010.
Based on our estimates, if Scomi Marine sells its 29 per cent stake in CHO, it would be sacrificing a sizeable share of the associates' profits in the amount of US$12 million-US$14 million, as well as an estimated S$3 million-S$10 million in cash dividends in FY2008-10. We believe that Scomi shareholders are unlikely to cash out from this growing cash cow in the short term.
CHO will likely flourish in the next two years as newbuilds come on-stream, and it is expected to rake in pre-exceptional EPS y-o-y growth of 70 per cent in 2009 and 40 per cent in 2010. We estimate CHO's FY2008 RNAV to be conservative at US$282 million or around S$0.55 per share, translating into a mere 1.1 times RNAV.
CHO, a forgotten gem in the making, is relatively cheap in terms of prospective PE and enterprise value/Ebitda.
-Research Report by Kim Eng Research (23 July)
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