We re-initiate coverage with a Buy rating and TP of S$0.61. MPM is enjoying steady growth in its operations and bottom line, fuelled by an increasingly energy-hungry Indonesia. The growth profile combined with demonstrated technical superiority means the stock should enjoy a premium, yet it trades at 1.0x historical-cost book. MPM is a conviction call with a potential to double in 2-3 years.
Rare gem for its direct exposure to cabotage-protected, resource-rich Indonesia. MPM is one of the very rare companies which can safely operate in Indonesian waters, without running afoul of the strongly-enforced cabotage laws and without having to worry about local partners, by virtue of management’s nationality. Indonesia, World #4 in population and the fastest-growing country in Southeast Asia, is an archipelago of 17,000 islands necessitating tug & barge services and endowed with offshore oil and gas reserves in both shallow and deep waters.
Technical capabilities top in class. MPM’s shipyard has delivered AHTS vessels with sustained bollard pulls averaging 15% in excess of the norm. Impressively, it recently outfitted a DP-3 vessel – a milestone usually reserved for established large yards. For a small company, this level of technical competence is remarkable. We like small companies with superior capabilities – these tend to appreciate strongly over the long term.
Associate PT BBR is listing today on the JSX. PT Bina Buana Raya, MPM’s 49%-owned associate, is listing today on the JSX. This will allow MPM to tap an alternative source of capital, much-needed in its capital-intensive growth strategy. We are forecasting BBR to grow at a 90% EPS CAGR for the three years to FY14F due to a fast-growing AHTS fleet, and 1H12 earnings of US$4.5m have already far exceeded the entire FY11’s US$2.6m.
Valuation: TP $0.61. Conviction call, likely to double in 2-3 years. We value MPM at 9x FY13F EPS, a fair multiple for 12.5% 3-year EPS CAGR. The same multiple on FY15F EPS yields a value of $0.80, a doubling on today’s price.
VALUATION: INITIATE WITH BUY, TP $0.61
Unnoticed gem with lower valuations and higher profitability. MPM just announced a 23% PATMI jump to $21.3m in FY12, yet it is still trading at 6.4x historical P/E and 5.9x FY13F EPS, which are valuations far below local and regional peers. Its historical ROE and ROA are 16.1% and 9.8%, comfortably above the 11.7% and 7.1% averages that peers have delivered. Looking ahead, MPM also outshines with FY13F ROE of 14.9% and ROA of 9.5%, against peers’ 12.0% and 7.2%.
Closest peers ASL Marine, Wintermar. In terms of operations, ASL Marine comes fairly close to MPM in operating a shipyard as well as building, owning and operating OSVs. Wintermar owns and operates OSVs in Indonesia, which is MPM’s growth strategy. Both these companies have much higher valuations in terms of P/E, yet lower ROE and ROA than MPM.
Valuation pegged at 9x. As such, we peg our valuation of MPM at 9x FY13F EPS. We select this multiple as it lies conservatively in the low end of the 8-13x average range, yet reflects a slight premium for the high ROE. The $0.61 TP implies a 1.47x P/B, coming in at the high end of the 1.0-1.5x average range, being the aforesaid premium.
Still under regression-predicted valuation. The P/B-on-ROE regression for the companies in this sector exhibits good consistency with theoretical predictions. A priori, a high ROE company should be valued with a higher P/B, and a simple regression delivers an acceptable R2 of 57%. The one-factor model is P/B = 0.2939 + 0.0827*(ROE). (We excluded Otto Marine from this regression as its negative ROE was a massive outlier.)
Given MPM’s FY12 ROE of 16.1%, its “fair” P/B as predicted by the regression model would be 1.625x book value, which implies a TP of $0.67. Our P/E based TP of $0.61 is therefore still lower than the sector’s ROE-adjusted valuation.
Still under regression-predicted valuation. The P/B-on-ROE regression for the companies in this sector exhibits good consistency with theoretical predictions. A priori, a high ROE company should be valued with a higher P/B, and a simple regression delivers an acceptable R2 of 57%. The one-factor model is P/B = 0.2939 + 0.0827*(ROE). (We excluded Otto Marine from this regression as its negative ROE was a massive outlier.)
Given MPM’s FY12 ROE of 16.1%, its “fair” P/B as predicted by the regression model would be 1.625x book value, which implies a TP of $0.67. Our P/E based TP of $0.61 is therefore still lower than the sector’s ROE-adjusted valuation.
Source: OSK
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