Jaya Holdings Sell Why Pay 14x P/E for 5.6% ROE?

Transcription

Initiating Coverage, 03 May 2013
Jaya Holdings (JAYA SP)
Sell
Industrial - Shipbuilding
Market Cap: USD406m
Target Price:
Price:
SGD0.55
SGD0.65
Macro
Why Pay 14x P/E for 5.6% ROE?
Risks
Growth
Value
Jaya Holdings Ltd (JAYA SP)
Relative to Singapore Straits Times (RHS)
0.75
124
0.70
119
0.65
114
0.60
109
0.55
104
0.50
99
0.45
94
18
0.40
16
14
12
10
8
6
4
2
89

Jan-13
Nov-12
Sep-12
Jul-12
Mar-13

Source: Bloomberg
Avg Turnover (SGD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (SGD)
Free float (%)
Shareholders (%)
Cathay Asset Management
Linden Advisers
OCP Asia Hong Kong
0.58m/0.47m
33.8
-16.0
0.51 - 0.73
0.15
20.7
19.1
14.0
compliant

Cabotage law was no secret, 3QFY13 likely to disappoint. We
estimate that Indonesia formed 24% (USD6.1m) of 2QFY13 revenues,
contributed by the three AHTS whose charters were canceled. This figure
is almost the entire 2QFY13’s USD6.5m net profit. We note that share
price did not correct immediately after the 18% consensus downgrade,
with the recent retreat associated with lackluster results from peer Ezra.
Under-utilised yards; not wowed by IHC-Merwede collaboration.
Jaya’s yards are still building its legacy speculative-build programme, and
this will consume all the cash on its books today. The IHC-Merwede tieup puts Jaya in direct competition with industry giant VARD (fka. STX
OSV) for offshore construction vessels. Further, there is no pre-agreed
profit-sharing formula, throwing further uncertainty on future profitability.
Destroying shareholder value. Jaya’s ROE of 5.6% to 9% over the next
three years are well below its cost of equity at 10.45% (RFR 2%, Beta
1.3, Risk premium 6.5%). We believe Street estimates of COE below 9%
are too optimistic – Jaya just emerged from a “Scheme of Arrangement”
with its debt-holders – and shareholders must demand a higher return on
their capital for the risk of new management and a new business model.
Prefer MTQ, Nam Cheong or Marco Polo Marine. Buy 20% ROE at 7x
PE instead. We forecast earnings to rebound 51% in FY14F premised
on 78% fleet utilisation but we think this is priced in at today’s 9.4x FY14F
EPS, leaving risks to the downside. We prefer MTQ, Nam Cheong and
Marco Polo Marine for lower valuations and stronger growth profiles. Our
TP of SGD0.55 is based on 9.5x FY13F/FY14F blended EPS.
Forecasts and Valuations
Jun-11
Jun-12
Jun-13F
Jun-14F
99
82
194
201
142
65.0
43.8
28.5
43.1
52.0
Total turnover (USDm)
Net income to ord equity (USDm)
Recurring net profit (USDm)
Jun-15F
65.0
43.8
28.5
43.1
52.0
(22.3)
(32.6)
(35.0)
51.3
20.7
Core EPS (USD)
0.08
0.06
0.04
0.06
0.07
DPS (USD)
0.00
0.00
0.01
0.02
0.02
Recurring net profit growth (%)
Lee Yue Jer +65 6232 3898
Dividend Yield (%)
0.0
0.0
1.9
2.9
3.5
[email protected]
Core P/E (x)
6.3
9.3
14.3
9.4
7.8
Return on average equity (%)
15.5
9.2
5.6
8.0
9.0
P/B (x)
0.90
0.82
0.78
0.73
0.68
Jason Saw +65 6232 3871
[email protected]
P/CF (x)
3.2
15.4
2.1
5.5
EV/EBITDA (x)
9.38
na
9.75
6.93
5.31
4.45
Net debt to equity (%)
15.7
9.2
Ours vs consensus EPS (%)
14.8
3.8
2.6
(3.1)
(5.2)
(9.5)
Source: Company data, OSK-DMG Estimates
See important disclosures at the end of this report


2

.
3
0
.
2
0
0
.
1
0
0
Jaya is an experienced Offshore Support Vessel (OSV) charterer and .
0
builder whose stock has run ahead of fundamentals. We initiate with a 0
SELL and a TP of SGD0.55, which implies 15% downside. Our call is 0
based on: i) High risk of vessel under-utilisation and potentially weak
FY13 results; ii) Valuation is unattractive at 14x FY13F P/E and low ROE
of 6-9% is below its cost of equity of 10.45%, and iii) Jaya’s intention to
continue the vessel chartering operations will prohibit the company
from realising its full RNAV.

May-12
Vol m
Price Close




Powered by Enhanced Datasystems’ EFATM Platform
03 May 2013
Financial Exhibits
 FY13F revenues boosted by c.USD72m sale
of Jaya Supreme, on which a USD1.3m loss
was recorded
 Earnings expected to trough this year at 35%
lower than FY12
 Earnings recovery in FY14F/15F depend
almost entirely on achieving assumed 78%
average utilisation. Assumption may be
optimistic given current operating
environment and poorer results reported by
peers Ezra and Swiber
Profit & Loss (USDm)
Jun-11
Jun-12
Jun-13F
Jun-14F
Jun-15F
Total turnover
99
82
194
201
142
Cost of sales
(69)
(57)
(151)
(144)
(76)
Gross profit
30
26
43
57
66
Gen & admin expenses
(6)
(8)
(8)
(7)
Other operating costs
-
-
(1)
-
(7)
-
Operating profit
23
18
35
50
Operating EBITDA
43
42
59
77
91
(20)
(24)
(24)
(26)
(33)
23
18
35
1
(1)
(0)
-
Other recurring income
59
24
1
-
Interest expense
(5)
(5)
(6)
(6)
(6)
Pre-tax profit
78
36
29
44
53
8
(1)
Depreciation of fixed assets
Operating EBIT
Net income from investments
Taxation
(13)
Minority interests
-
-
0
50
59
59
-
(1)
-
(1)
-
Profit after tax & minorities
65
44
28
43
52
Net income to ord equity
65
44
28
43
52
Recurring net profit
65
44
28
43
52
 Large operating inflow in FY14F as
speculative-build vessels in inventory are
released into the fleet. Offset by Capex.
 We believe Jaya needs to increase their
borrowing or sell vessels to fund their
outstanding newbuild programme.
Cash flow (USDm)
Jun-11
Jun-12
Jun-13F
Jun-14F
Jun-15F
Operating profit
23
18
35
50
59
Depreciation & amortisation
20
24
24
26
33
Change in working capital
17
116
(34)
120
(16)
-
-
Other operating cash flow
(62)
(25)
0
(2)
133
25
Operating cash flow
(4)
196
1
76
Tax paid
(10)
(1)
Cash flow from operations
(12)
129
26
196
74
(1)
Capex
(54)
(97)
(186)
(58)
(202)
Other investing cash flow
94
66
12
75
Cash flow from investing activities
(3)
(119)
(46)
(127)
(4)
(6)
(9)
(101)
(15)
(16)
Dividends paid
-
-
Increase in debt
-
(12)
(54)
Other financing cash flow
(6)
(8)
(8)
(6)
(6)
Cash flow from financing activities
(6)
(19)
(113)
(27)
(31)
Cash at beginning of period
169
187
200
68
109
Total cash generated
(22)
(10)
(133)
42
(11)
(0)
0
Forex effects
Implied cash at end of period
146
177
67
109
99
2
03 May 2013
 Current net cash position of USD26m as of
2QFY13
 However, committed capital expenditure of
c.USD218m exceeds cash on hand of
USD176m
 Expecting a swing back to net debt as cash is
consumed to fund newbuild programme
 Healthy overall balance sheet position as net
debt is low and mgmt. has committed to
keeping debt levels low and to fund
newbuilds by vessel sales
Balance Sheet (USDm)
Jun-11
Jun-12
Jun-13F
Jun-14F
Jun-15F
Total cash and equivalents
187
200
68
109
99
Inventories
222
167
189
60
55
Accounts receivable
33
17
24
31
35
Other current assets
30
20
17
17
17
Total current assets
471
405
298
218
206
Total investments
Tangible fixed assets
Intangible assets
0
0
544
565
0
0
0
0
0
420
443
544
565
Total assets
791
825
741
762
771
Short-term debt
12
50
32
32
32
Accounts payable
36
50
37
36
19
Other current liabilities
45
30
35
35
35
Total current liabilities
92
130
104
103
86
246
196
113
98
82
0
0
1
1
1
Total non-current liabilities
246
196
114
99
83
Total liabilities
338
327
218
202
169
Share capital
102
102
102
102
102
Retained earnings reserve
351
395
420
457
499
1
1
1
1
498
523
560
602
Other reserves
Shareholders' equity
Minority interests
Other equity
 ROA below industry average of 7-8%
0
443
320
Other liabilities
short of WACC of 10.45%
0
420
Total non-current assets
Total long-term debt
 ROE below 9% over 3-year forecast period,
6
314
(1)
453
0
0
(0)
(0)
(0)
(0)
0
0
(0)
0
Total equity
453
498
523
560
602
Total liabilities & equity
791
825
741
762
771
Key Ratios (USD)
Jun-11
Jun-12
Jun-13F
Jun-14F
Jun-15F
Revenue growth (%)
(65.7)
(16.9)
135.9
3.8
(29.7)
Operating profit growth (%)
(68.9)
(24.2)
96.5
45.1
16.7
Net profit growth (%)
(22.3)
(32.6)
(35.0)
51.3
20.7
EPS growth (%)
(22.3)
(32.6)
(35.0)
51.3
20.7
Bv per share growth (%)
17.3
10.0
4.9
7.1
7.6
Operating margin (%)
23.5
21.4
17.8
24.9
41.4
Net profit margin (%)
65.8
53.3
14.7
21.4
36.7
Return on average assets (%)
8.1
5.4
3.6
5.7
6.8
Return on average equity (%)
15.5
9.2
5.6
8.0
9.0
Net debt to equity (%)
15.7
9.2
14.8
3.8
2.6
DPS
0.00
0.00
0.01
0.02
0.02
(0.02)
0.17
0.03
0.25
0.10
Recurrent cash flow per share
3
03 May 2013
Valuation: Initiate with SELL, TP SGD0.55
9.5x P/E yields TP of SGD0.55. We elect to value Jaya using P/E as we believe that
a company returning less than the cost of equity is worth less than its book value. We
normally value companies smaller than USD500m at 7-9x prospective EPS, and in
Jaya’s case we peg it at the top of the range to take into account the earnings
rebound after the current year’s trough. Even so, the 9.5x blended FY13F/FY14F
EPS yields a TP of SGD0.55 (on FY13F earnings alone it would be SGD0.43), which
triggers our SELL call.
Trading at upper end of P/B band even with low ROE. In the past, during the
boom times Jaya’s speculative-building model produced ROEs in excess of 30%, for
which the market was happy to pay 3x to 4x book value. Jaya’s strategic shift from
heavily dependent on shipbuilding to a vessel charterer resulted in the market
changing its valuation metric, resulting in a large fall from the 3-4x P/B range to the
0.5-1x range today.
Figure 1 Not what it was before
Figure 2 Too high too fast: Two SDs in six months
4.5
Title:
Source:
1.0
4.0
3.5
0.8
Please fill in the values above to have them entered in y
3.0
2.5
0.6
2.0
1.5
0.4
1.0
0.5
0.2
0.0
0.0
May-11
P/B
Source: OSK-DMG, Bloomberg
Nov-11
P/B (x)
May-12
Average
Nov-12
+1SD
-1SD
In the last six months, Jaya has risen 21% along with a re-rating of the offshore
sector. This corresponds to a two-standard-deviation move in Jaya’s P/B valuation,
based on the last 24 months of data, from -1SD to +1SD around the 0.7x mean. As
Jaya’s ROE trails its cost of equity by a large margin, we believe that a 0.8x P/B
looks rich or at best fully-valued.
Forward P/E at abnormally high range. The P/E perspective reveals a curious
picture:
Figure 3 Not waving…
Figure 4 Abnormally high valuation range
30.0
Title:
Source:
18.0
16.0
25.0
0.9
0.8
14.0
20.0
1
0.7
12.0
0.6
10.0
15.0
0.5
8.0
10.0
0.4
6.0
5.0
0.0
0.2
2.0
0.1
0.0
Aug-10
P/E Ratio
0.3
4.0
0
Feb-11
Aug-11
Fwd P/E Ratio (LHS)
Feb-12
Aug-12
Feb-13
Stock Px (SGD, RHS)
4
03 May 2013
2009 marked the tumultuous period when Jaya’s business model changed, and
therefore the forward P/E data in Figure 4 represent a continuous period representing
the vessel-chartering business. Jaya’s forward P/E from August 2010 through August
2012 ranged between 4x to 10x. A period of zero analyst coverage occurred between
October 2012 and December 2012, and thereafter, the valuation jumped to 14x and
above alongside the 21% run-up in the stock price.
Even through the boom times, the historical-P/E of Jaya rarely exceeded 15x,
hovering around 8x to 10x. Today, its forward P/E of 14.3x for FY13F and 9.4x for
FY14F indicates full valuation and limited upside.
DCF value of SGD0.63 indicates stock is over-valued; peers trade at large
discounts. Our DCF value is based on a WACC of 11.45% (RFR 2%, Beta 1.3, Risk
Premium 6.5%, 1% small-/mid-cap penalty). In contrast, many other companies in the
offshore oil & gas space trade at discounts of 25% to 50% to their DCF value. Also,
this DCF is likely to be somewhat overstated as the key assumption of a sustained,
perpetual 78% utilisation rate may not be realised.
Figure 5 Not enough cash coming in
SGDUSD=
0.8066
Market Price (USD)
Diluted Shares O/S ('000)
Market Cap (USD '000)
Debt (USD '000)
Cash (USD '000)
0.52
771,702
404,596
150,000
176,508
Enterprise Value (USD '000)
378,088
FYE 30 Jun
Operating CF before Interest (USD '000)
Capex (USD '000)
FCF (USD '000)
Discount factor
2HFY13
2014F
2015F
2016F
2017F
2018F
2019F
2020F
2021F
2022F
2023F
2024F
2025F
(46,168) 195,592 74,490 92,255 108,765 95,373 98,273 102,662 105,742 108,914 112,182 115,547 119,014
(51,624) (127,000) (54,000) (45,000) (46,350) (47,741) (49,173) (50,648) (52,167) (53,732) (55,344) (57,005) (58,715)
(97,792) 68,592 20,490 47,255 62,415 47,633 49,100 52,014 53,575 55,182 56,838 58,543 60,299
0.947
0.850
0.763
0.684
0.614
0.551
0.494
0.444
0.398
0.357
0.320
0.287
0.258
Second-stage grow th
DCF (USD '000)
-92,632
Second-stage growth rate
Terminal growth rate
PV of Terminal value (USD '000)
3.00%
1.00%
150,319
Gross DCF
Less Net Debt / Add Net Cash
367,457
26,508
Net Forward Equity Value (USD '000)
Number of Shares O/S ('000)
393,965
771,702
Fair Value (USD)
Fair Value (SGD)
E / EV =
D / EV =
Marginal Interest Rate
Marginal Tax Rate
Cost of equity
Risk-free rate
Beta
Risk premium
Small/mid-cap penalty
Singapore WACC
58,298
15,626
32,334
38,320
26,240
24,270
23,069
21,320
19,703
18,209
16,829
15,553
0.511
$ 0.63
1.000
0.000
4.50%
4.9%
10.45%
2.00%
1.300
6.50%
1.00%
11.450%
Source: OSK-DMG
5
03 May 2013
“Best-case” RNAV approach values Jaya at SGD0.83. Not realisable. Jaya’s
RNAV is a fairly respectable SGD0.83, but we see a number of critical factors
preventing this RNAV from being achieved in the market: i) ROE of 5.6% to 8.9% well
below cost of equity of 10.45%; ii) Risk of vessel under-utilisation leading to lowerthan-expected margins and returns; iii) Mgmt. unwilling to realise the value of its fleet
via liquidation as they intend to continue Jaya’s vessel chartering operations; iv) Both
Singapore and Batam yards under-utilised and burning cash – cannot be sold as
there are few buyers in the market for yards and these yards are still building for
Jaya’s own fleet.
Figure 6 Summary RNAV table
Market Value of Fleet (See Figure 7)
Market Value of Newbuilds (See Figure 8)
Cost to Complete Newbuilds (See Figure 9)
Add Cash
Less Debt
RNAV (USDm)
USD'm
378.2
328.0
-218.2
176.5
-150.0
514.5
Number of Shares (m)
SGDUSD
771.7
0.8066
RNAV per share (SGD)
0.83
Source: OSK-DMG
Figure 7 Market value of Jaya’s existing fleet (As of Mar 2013)
NewPx Est MV
AHTS
BHP Year Age (USDm) (USDm)
1 DJM Fortune 3
4,750 2004
9
9
5.0
2 Jaya Scout
4,750 2004
9
9
5.0
3 Jaya Amandam
4,800 2009
4
10
8.0
4 Jaya Amara
4,800 2009
4
10
8.0
5 Jaya Amethyst
4,800 2011
2
10
9.0
6 Jaya Treasure 2
5,150 2005
8
9
5.4
7 Jaya Almighty
5,150 2010
3
11
9.4
8 Jaya Seal
5,500 2004
9
11
6.1
9 MDPL Conqueror
8,000 2010
3
21
17.9
10 Jaya Cavalier
8,000 2011
2
21
18.9
11 Jaya Concordia
8,000 2010
3
21
17.9
12 MDPL Continental One 8,000 2010
3
21
17.9
13 Jaya Confidence
8,000 2010
3
21
17.9
14 Jaya Centurion
8,000 2011
2
21
18.9
15 Jaya Coral
8,000 2011
2
21
18.9
16 Jaya Chieftain
8,160 2010
3
21
17.9
17 Jaya Crystal
8,000 2012
1
21
20.0
18 Ossoy (ex. Dauphin)
10,800 2009
4
25
20.0
19 Jaya Defender
10,800 2009
4
25
20.0
20 Sea Hawk 1
12,069 2010
3
32
27.2
DP
NO DP
NO DP
DP-1
DP-1
DP-1
NO DP
DP-1
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
AHT
21 Jaya Mermaid 3
NewPx Est MV
5,150 2007
6
8
5.6
DP
NO DP
DP2 ROVSV
22 Jaya Pioneer
23 Jaya Pearl
NewPx Est MV
6,000 2011
2
29
26.1
6,000 2012
1
29
27.6
DP
DP-2
DP-2
Flat Top Barges
24 Jaya 300
25 Jaya 301
26 Jaya 302
NewPx Est MV
DWT Year Age (USDm) (USDm)
9,900 2007
6
2
1.0
9,000 2007
6
2
1.0
9,000 2008
5
2
1.2
DP
n.a.
n.a.
n.a.
AWB
27 Jaya Installer 10
NewPx Est MV
DWT Year Age (USDm) (USDm)
9,900 2011
2
30
27.0
DP
n.a.
TOTAL MARKET VALUE
378.2
Source: OSK-DMG
6
03 May 2013
Figure 8 Market value of Jaya’s vessels currently under construction (As of Mar 2013)
PSV
DWT
Year
Yard
Est MV
1 Jaya Valour
4,500
Jun-13 Batam
32
2 Jaya Vigilant
4,500
Jul-13 Batam
32
3 Jaya Victory
3,500
Jan-14 China
22
4 Jaya Valiant
3,500
Apr-14 China
22
ROV Support Vessels
DWT
Year
Yard
5 Jaya Pride
3,000
Feb-13 Batam
29
6 Jaya Prestige
3,000
Jan-14 Batam
29
7 Jaya Progress
3,000
Jan-15 Batam
29
8 ROV P6
3,000
Apr-15 Batam
29
AHTS
9 Jaya Sovereign
10 Jaya Majestic
Jaya Marvel
BHP
Year
16,094
Nov-13
12,070
Sep-13
12,070
Feb-14
Yard
Singapore
Singapore
Batam
72
32
Total MV:
328
Source: OSK-DMG
Figure 9 Vessels under construction – cost to complete (As of Mar 2013)
Estimated
Estimated
Cash cost
Type
Name
BHP/DWT Delivery % Complete Build Cost to complete
1 MP WB Jaya Pride
5,150
Feb-13
90%
27
2.7
2 PSV
Jaya Valour
4,500
Apr-13
80%
31
6.2
3 PSV
Jaya Vigilant
4,500
Jul-13
50%
31
15.5
4 AHTS
Jaya Majestic
12,240
Sep-13
40%
31
18.6
5 AHTS
Jaya Sovereign
16,000
Nov-13
10%
72
64.8
6 PSV
Jaya Victory
3,500
Jan-14
20%
21
16.8
7 ROV
Jaya Prestige
3,000
Jan-14
20%
27
21.6
8 PSV
Jaya Valiant
3,500
Apr-14
10%
20
18.0
9 ROV
Jaya Progress
3,000
Jan-15
0%
27
27.0
10 ROV
"P6"
3,000
Apr-15
0%
27
27.0
Totals:
314
218.2
Cash outlay
FY13
FY14
FY15
2.7
6.2
12.4
3.1
8.0
10.6
55.0
9.8
9.0
7.8
15.0
6.6
12.0
6.0
5.0
15.0
7.0
5.0
15.0
7.0
130.3
73.9
14.0
Source: OSK-DMG
Yards better sold than kept on books, but likely few buyers. One key adjustment
we have not made to the RNAV is the valuation of Jaya’s two yards. Our industry
sources estimate the yards’ value at about USD15m-20m, which is in the ballpark of
the carrying value on Jaya’s books. However, we think that annual overheads are
around USD8m in total, with a total present value around USD70m. Hence, without
third-party orders now, Jaya’s yards are better off sold than kept on the books. From
another perspective, at 8% margins today Jaya would need USD100m of work per
year to break even on the yards, which we see as unattainable in the near future. The
RNAV adjusted for the yards would be about SGD0.74 per share.
Our valuation of SGD0.55 per share represents a 33% discount to the RNAV of
SGD0.83, which we think is warranted given the critical factors mentioned above.
Peers with much higher margins and ROEs trading at 8x forward P/E. Against its
peers, Jaya compares unfavourably on many counts – higher valuations on P/E with
lower returns on equity and on assets.
Figure 10 Peer comparison
ASL Marine
CH Offshore
Ezra
Marco Polo Marine
Nam Cheong
Vard (fka STX OSV)
Swiber Holdings
Swissco Holdings
Average
Jaya
P/E Fwd P/E
7.7
6.6
6.9
7.4
11.3
16.1
6.7
6.0
8.7
7.3
6.6
6.4
6.0
5.1
7.1
n.a.
7.6
7.8
9.2
14.2
P/B
0.8
1.1
0.7
1.0
2.0
1.9
0.7
1.0
1.1
0.8
ROE (%) Fwd ROE
10.3
12.0
15.7
11.5
7.0
5.2
16.0
14.9
25.6
23.9
27.0
25.9
12.2
11.5
15.2
n.a.
16.1
15.0
9.2
5.6
ROA (%) Fwd ROA
3.9
5.3
14.5
10.7
2.5
2.1
9.9
9.5
12.0
11.5
7.0
6.7
2.8
2.8
7.1
n.a.
7.5
6.9
5.4
3.6
7
03 May 2013
Table of Contents
Financial Exhibits ........................................................................................................ 2
Valuation: Initiate with SELL, TP SGD0.55 ................................................................. 4
Table of Contents ........................................................................................................ 8
Company Brief ............................................................................................................ 9
Investment Summary ................................................................................................ 10
Earnings Outlook ...................................................................................................... 11
Key Risks: Both Upside and Downside ..................................................................... 16
Our Vessel Chartering Model .................................................................................... 17
SWOT Analysis ......................................................................................................... 19
Company Background............................................................................................... 20
Appendix I: Glossary of Technical Terms.................................................................. 22
Recommendation Chart ............................................................................................ 23
8
03 May 2013
Company Brief
Shipyard-turned-OSV-charterer. Jaya’s business model has changed since its pre2008 speculative-builder-cum-charterer days. During the shipbuilding boom, its
speculative-building model returned strong margins, but almost took the company
down when the cycle turned. Today, it is focused on OSV-chartering with its fleet of
nearly 30 vessels.
Figure 11 The 16,000bhp Ice-class Atlantic Kestrel (ex. Jaya Supreme) sold at a USD1.3m
loss
Source: Upstream
Shipyards: Completing legacy shipbuilding programme, delivering into charter
fleet. Jaya owns two shipyards, one in Singapore and another in Batam, Indonesia.
Its yards have a combined capacity of about nine vessels per year. It also purchases
its vessels from partner yards in China, though this has largely ceased with the new
business model with only two PSVs outstanding on order. It is currently executing
nine vessels remaining from the legacy shipbuilding programme, and these will be
delivered into the charter fleet between FY13 and FY15.
Chartering: Young fleet consisting of AHTS vessels, PSVs, ROV support
vessels, and others. With the delivery of the Jaya Pride in Feb 2013, Jaya now
owns and operates 28 vessels – 20 AHTS, one AHT, two ROV Support Vessels, one
Accommodation Work Barge, three flat-top barges, and one Multi-Purpose
Maintenance Work Boat. The fleet is young at an average age of 3.8 years this year.
Key operating driver will be utilisation rates of charter fleet. Given that OSVchartering is essentially almost all fixed costs, we estimate that a 55% utilisation rate
is necessary to break even. With the high level of operational leverage, charters
above this level rapidly flow to the bottom line. Thus, investors should watch the
utilisation rate closely, especially for the larger, higher-value vessels.
9
03 May 2013
Investment Summary
ROE less than cost of equity. Jaya stock has run ahead of fundamentals, gaining
21% in the last six months to FY13F/FY14F PE ratios of 14.3x/9.4x. In our view, the
stock is fully valued, with risks mostly on the downside. From the returns perspective,
the forecast ROEs of 5.6% and 8% are below the 10.45% cost of equity.
Disappointing 3QFY13 and FY13F should catalyse stock price correction. Our
model indicates that Jaya is likely to report a disappointing 3QFY13 (industry sources
reveal multiple charters expiring, three vessels forced out from Indonesia off-charter
for a month, reflagging downtime and expenses for a number of AHTS vessels)
which will weigh down the entire FY13F performance. We believe the potentially
disappointing 3Q results and 35% lower FY13F results should catalyse a correction.
Current net cash position is temporary. The current net cash position of
USD26.5m is illusory – the USD220m required to complete the shipbuilding
programme will consume all USD176m gross cash on hand. Our analysis indicates
that Jaya may need to raise more debt or sell its vessels. Management has opted for
the latter in prior communications. Further, we noted certain delays and cancellations
in the shipbuilding programme that may indicate a tight cashflow and the need to
ration the limited cash.
Share price did not react to an 18% downgrade of estimates. Based on our
estimates, the three vessels that had contracts cancelled in Indonesia formed 24% of
2QFY13 revenues and the USD6.1m quarterly revenue lost is almost the entire
quarter’s USD6.5m profits. After the revelation in 2QFY13 results, the consensus
slashed estimates by 18% (from USD36m to USD29.4m) for FY13F, but the share
price failed to make a similar adjustment.
Change in depreciation policy adds 30% to current-year profits. In Jaya’s FY12
Annual Report, we noted a significant change in the depreciation policy to 20 years
for vessels (from 15 years) which will add USD6.5m per year to its reported earnings.
Incongruously, management has been saying that oil majors are now increasingly
reluctant to hire vessels older than 15 years, with one of them already having
entrenched this requirement in policy and with more likely to follow. While this brings
Jaya in line with industry practice, we believe that leaving the depreciation policy
unchanged would have been more conservative.
Shipyard under-utilised. Jaya’s two yards are now only engaged in building its
legacy speculative-build programme. It has a nine-vessel building plan spread over
two years, indicating that its yards are only at about 40% utilisation on average. We
see two potential directions for the yards – enter the repair business and/or build-toorder vessels. However, to enter the repair business, Jaya will need additional
investment in drydocks or a Syncrolift, both requiring additional time and capital, and
it may need to begin by accepting lower margins to secure contracts.
Collaboration with IHC-Merwede does not spell out critical terms. While much
has been made of Jaya’s collaboration with IHC-Merwede in building offshore
construction vessels, little has been said about the risks. We note that industry giant
VARD, against which Jaya will likely be competing, is operating at 7% to 8.5% net
margins in build-to-order contracts. If IHC competes on price, these margins will
evaporate, and in any case Jaya will probably still need to share out its profits with
IHC-Merwede, further diluting its profit margin.
Massive share overhang – Funds probably looking to exit from 60% combined
position. We believe the funds which took over Jaya in FY11 at SGD0.48 per share
are now likely looking to exit, which creates a massive share overhang with 60% of
the outstanding share issued now potentially looking for buyers. With little earnings
momentum (-0.8% EPS CAGR to FY14F), we do not see strong fundamental
reasons for further rerating, and the share overhang will likely persist.
Many other oil & gas companies with higher ROEs at far more attractive
valuations. Why pay 14x PE for 5.6% ROE? We recommend the converse – pay 6x
to 8x PE for 15% to 25% ROE sustainable over the next three years. MTQ, Nam
Cheong and Marco Polo Marine all have solid industry positions (MPM, in particular,
benefits from the cabotage law which forced out Jaya’s vessels), backed by
experienced industry veterans and long track records. Our TP for Jaya at SGD0.55 is
based on 9.5x FY13F/FY14F blended EPS.
10
03 May 2013
Earnings Outlook
Not much growth from three-year low FY12 results. If investors are looking for a
return to the “good old days” of pre-2009, they will be disappointed. We forecast
FY13F net profits of USD28.5m, down 35% from the three-year low of FY12. With
more vessels being delivered this year, FY14F should see a rebound from chartering
income, and we expect a bottom line of USD43m, which represents a flat earnings
growth profile from FY12. These estimates assume a healthy 78% average fleet
utilisation.
Figure 12 Far cry from the good old days
140
120
100
80
60
40
20
0
2007
08
09
10
11
12
13F
14F
15F
Net Profits (USDm)
Source: OSK-DMG
High cost of vessels produces lower ROE. Jaya earned very high profits in the
shipbuilding boom market up to FY08, with ROEs above 30%. A lot of the earnings of
the prior years have been reinvested in the business, funding the vessels in the
charter fleet and those being built in the shipyard today. Many of the vessels in the
fleet were built at boom-time high prices, depressing their profitability today. With
even the most optimistic estimates on the Street forecasting single-digit ROEs these
two years, we do not think Jaya is a fundamentally strong investment.
Figure 13 Low returns on equity
40%
35%
30%
25%
20%
15%
10%
5%
0%
2007
08
09
10
11
12
13F
14F
15F
ROE (%)
Source: OSK-DMG
11
03 May 2013
OSV-chartering is essentially all fixed costs: breakeven at 55% utilisation. For
vessel charterers, most of the costs are depreciation, interest, and crew salaries.
Relative to these fixed costs, variable costs like fuel costs are relatively small. As
such, as evinced in Jaya’s segmental results, total costs attributable to the chartering
segment are very stable, jumping up only on vessel deliveries. Jaya is now operating
at a quarterly cost of USD17m (costs are so stable that 1Q and 2QFY13 costs differ
by only USD0.158m), but these are set to rise with the vessel deliveries into the
charter fleet over the next two years.
Figure 14 Almost all fixed costs
Figure 15 High operational leverage in chartering profits
20.0
10.0
18.0
9.0
16.0
8.0
Title:
Source:
85%
7.0
14.0
90%
80%
6.0
12.0
5.0
10.0
4.0
8.0
3.0
6.0
2.0
4.0
1.0
75%
70%
65%
0.0
2.0
60%
0.0
1QFY12
2Q
3Q
4Q
1QFY13
2Q
3Q (F) 4Q (F)
Total Chartering Costs (USDm)
Chartering segment profit (USDm)
Source: OSK-DMG
Utilisation rate (%)
Source: OSK-DMG
As the graphs clearly show, the high stable fixed costs impart a high level of
operational leverage on the chartering business. Our model indicates breakeven near
55% utilisation. At the “peak” utilisation rate of 80% to 85%, our model indicates that
Jaya’s vessels can earn about USD9m-10m a quarter, but this shrinks to USD2m at
the 65% utilisation level.
Fixed cost structure to increase as more vessels are added to fleet. From the
annual cost of USD67m we are looking at currently, we forecast that the delivery of
the nine vessels in the shipbuilding programme into the charter fleet will increase the
cost structure to USD83m/89m from FY14F to FY15F. While the vessels increase the
earnings potential of the fleet, the rising fixed costs also increase the operational
leverage of the company.
Figure 16 Additional fixed costs incurred after delivery into fleet
Type
MP WB
PSV
PSV
AHTS
AHTS
PSV
ROV
PSV
ROV
ROV
Name
Jaya Pride
Jaya Valour
Jaya Vigilant
Jaya Majestic
Jaya Sovereign
Jaya Victory
Jaya Prestige
Jaya Valiant
Jaya Progress
"P6"
BHP/DWT Delivery
5,150
Feb-13
4,500
Apr-13
4,500
Jul-13
12,240
Sep-13
16,000
Nov-13
3,500
Jan-14
3,000
Jan-14
3,500
Apr-14
3,000
Jan-15
3,000
Apr-15
Estimated
Annual
Build Cost Depreciation
27
1.35
31
1.55
31
1.55
31
1.55
72
0.00
21
1.05
27
1.35
20
1.00
27
1.35
27
1.35
Annual
Opex
1.98
1.98
1.98
2.77
0.00
1.54
0.00
1.54
0.00
0.00
Additional cost from vessels delivered in current year
Full-year cost of existing vessels (FY13 includes 3 months of disposed AHTS cost)
Total fixed cost in year (USDm)
Additional cost in
FY13
FY14
FY15
1.23
3.33
3.33
0.73
3.53
3.53
0.00
3.38
3.53
0.00
3.40
4.32
0.00
0.00
0.00
0.00
1.18
2.59
0.00
0.61
1.35
0.00
0.53
2.54
0.00
0.00
0.61
0.00
0.00
0.28
2.0
66.9
68.9
16.0
66.4
82.4
22.1
66.4
88.5
FY16
3.33
3.53
3.53
4.32
0.00
2.59
1.35
2.54
1.35
1.35
23.9
66.4
90.3
Notes:
th

Incremental costs have been pro-rated for time in fleet. Vessels assumed delivered on the 15 of each month.

Jaya Sovereign’s delivery date was originally May 2013, was delayed to “Beyond FY2013” in 2QFY13 quarterly
announcements, but according to industry sources it was suddenly brought forward to Nov 2013. We believe it is
intended for sale to provide cash and therefore project neither revenues nor costs from this vessel.

Jaya management was not consulted during the construction of this model
Source: OSK-DMG
12
03 May 2013
Legacy shipbuilding programme continues to burn cash. Jaya’s shipbuilding
plan from the speculative-building days will consume all the cash on its balance sheet
today. In 2QFY13 results, management noted that USD220m will be required to
complete the vessels, while cash on hand is at USD176m, leaving a gap of USD44m.
Figure 17 Focusing on the cash burn
1
2
3
4
5
6
7
8
9
10
Type
MP WB
PSV
PSV
AHTS
AHTS
PSV
ROV
PSV
ROV
ROV
Name
Jaya Pride
Jaya Valour
Jaya Vigilant
Jaya Majestic
Jaya Sovereign
Jaya Victory
Jaya Prestige
Jaya Valiant
Jaya Progress
"P6"
Estimated
BHP/DWT Delivery % Complete
5,150
Feb-13
90%
4,500
Apr-13
80%
4,500
Jul-13
50%
12,240
Sep-13
40%
16,000
Nov-13
10%
3,500
Jan-14
20%
3,000
Jan-14
20%
3,500
Apr-14
10%
3,000
Jan-15
0%
3,000
Apr-15
0%
Totals:
Estimated
Cash cost
Build Cost to complete
27
2.7
31
6.2
31
15.5
31
18.6
72
64.8
21
16.8
27
21.6
20
18.0
27
27.0
27
27.0
314
218.2
Cash outlay
FY13
FY14
FY15
2.7
6.2
12.4
3.1
8.0
10.6
55.0
9.8
9.0
7.8
15.0
6.6
12.0
6.0
5.0
15.0
7.0
5.0
15.0
7.0
130.3
73.9
14.0
Notes:

We consulted an industry veteran on the market value of the ROV Support Vessels using data from the specifications
sheet, and the resulting estimate centered on USD28m.

Jaya Sovereign and Jaya Progress have been significantly delayed from their original delivery dates published in the
FY12 Annual Report.

Comparing presentation slides across quarters, it appears that a 12,240bhp AHTS (“Jaya Marvel”) was cancelled. In
its place is a yet-unnamed ROV Support Vessel which we have dubbed “P6”.

Jaya management was not consulted during the construction of this model.
Source: OSK-DMG
Delays and cancellations hint at tight cash-flow. There have been significant
changes to the shipbuilding programme since the end of FY12. Comparing
presentation slides across quarters, we believe that a 12,000bhp AHTS – the Jaya
Marvel – was cancelled. We think such a vessel may encounter difficulty securing
charters in regional waters that generally only require up to 10,000bhp vessels, and
hence this may be a prudent move operationally. The alternative viewpoint is that a
12,000bhp AHTS will cost about USD31m to build – a proportionately large sum
relative to the USD176m cash on hand.
Two vessels were delayed by more than the normal industry variation of 45 days.
The Jaya Sovereign has been pushed back by six months, and the Jaya Progress by
nine months, according to our estimates and corroboration by industry sources.
As shipbuilding is the largest source of cash burn for Jaya, the delays and
cancellation together paint a picture of tight cash-flows.
USD44m gap to be bridged by debt or vessel sales. As current operating cash
flows from chartering are insufficient to bridge the gap, Jaya can either raise debt or
sell vessels to generate the cash necessary to complete the shipbuilding programme.
Over the last two quarters, management has indicated that vessel sales will be a
primary source of cash. While we understand the exigencies, we also note that this
will have a negative impact on future earnings as vessels sold will no longer
contribute to earnings. (Ideally, management should sell vessels currently without
charters, but chartered vessels are more saleable given the immediate earnings
contribution).
A higher debt level is actually ideal. Jaya’s low ROE is also partly due to the net
cash position that management is targeting to maintain. Typically, vessels with long
time charters have the visibility of cash flows and earnings that would allow a healthy
level of leverage to be used – this is the ideal model for vessel charterers. We think
Jaya’s balance sheet is sufficiently strong to take on additional debt to boost returns
to equity – our model indicates net gearing will be below 0.4x if Jaya raises debt to
complete the shipbuilding programme
13
03 May 2013
Figure 18 How to spend USD220m
200
150
100
50
0
-50
-100
-150
-200
-250
2007
08
09
10
11
Purchase of PPE (USDm)
12
13F
14F
15F
Disposal of PPE
Source: OSK-DMG
Shipyard under-utilised. Direction forward unclear. Jaya’s two yards are now only
engaged in building its legacy speculative-build programme. It has a nine-vessel
building plan spread over two years, indicating only about 40% utilisation. We see
two potential directions for the yards – enter the repair business and/or build-to-order
vessels. However, to enter the lucrative repair business, Jaya will need additional
investment in drydocks or a Syncrolift, both requiring additional time and capital, and
it may need to begin by accepting lower margins to secure contracts.
Not wowed by IHC-Merwede collaboration. In how many ways can a 7% net
margin be split? While much has been made of Jaya’s collaboration with IHCMerwede in building offshore construction vessels, little has been said about the
risks. We note that industry giant VARD (fka. STX OSV), against which IHC/Jaya will
be competing, is operating at 7% to 8.5% net margins in build-to-order contracts. If
IHC competes on price, these margins will evaporate, and in any case Jaya will likely
need to share out its profits with IHC-Merwede, further diluting its profit margin.
Management highlighted that the profit-sharing with IHC-Merwede will be on a caseby-case basis and there is there is no pre-agreed formula.
Three AHTS vessels hit by Indonesian cabotage law implementation. The
cabotage situation in Indonesia is not news – it was featured in Jaya’s Annual Report
from as early as FY10. Hence, we were surprised when management mentioned that
the implementation had led to the cancellation of contracts of three AHTS vessels. As
can be seen in the table below, the grace period cutoff date for AHTS vessels was
known well in advance – the Regulation was published in April 2011.
Figure 19 AHTS vessels ran out of time
Activity
Vessel Type
Supporting offshore and
Offshore construction
AHTS vessel ≥5,000 bhp with Dynamic Positioning
Platform Supply Vessel
Diving Support Vessel
Dredging
2012
2013 2014 2015
X
X
X
X
X
X
Drag Head Suction Hopper Dredger
Tailing Suction Hopper Dredger
X
X
X
X
Subsea construction /
Offshore rescue
Heavy Floating Crane, Heavy Crane Barge
Survey Salvage
X
X
X
X
X
X
Oil & Gas survey
Derrick/Crane, Pipe/Cable/Sub-Sea Umbilical Riser
Flexible-laying Barge
Seismic, Geophysical, and Geotechnical
Drilling
X
X
X
X
Jack-up Rig, Semi-submersible Rig
Deep-water Drillship, Tender Assist Rig
& Swamp Barge Rig
X: Foreign vessels no longer allowed exceptions. Must deploy Indonesian-flagged vessel
Source: Regulation of the Minister of Transportation PM 48/2011 dated 18 Apr 2011, OSK-DMG
14
03 May 2013
Uneasy with flagging vessels Indonesian, effectively locked out of fastestgrowing market in the region. To continue operations in Indonesia, a vessel has to
be Indonesian-flagged, which requires selling at least a 51% stake to an Indonesian
partner and also involves hiring Indonesian crew. So far, management appears
uneasy with the idea of selling controlling stakes in their vessels. This locks Jaya out
of the highly-lucrative Indonesian market, which is facing an extreme shortage of
vessels which has pushed charter rates to a 20%-30% premium over the region.
Change in depreciation policy adds 30% to annual profits this year. Last year,
Jaya made a significant change to its depreciation assumption, raising the estimated
useful lives of vessels from 15 to 20 years. This resulted in a 15% increase in profits
in FY12. For the current year, this accounting change actually results in a 30%
increase at the bottom line.
While this brings Jaya roughly in line with industry practice, we find this to be at odds
with what management has been saying about the industry. Management had
highlighted that oil majors are now increasingly reluctant to hire vessels older than 15
years, with one of them already having entrenched this requirement in policy and with
more likely to follow. As such, the more prudent option would have been to leave the
depreciation assumption at 15 years.
Figure 20 A move decidedly away from conservatism
Source: Jaya Holdings Annual Report 2012
15
03 May 2013
Key Risks: Both Upside and Downside
Fleet utilisation is the key risk factor. Our assumption of 78% annual fleet
utilisation is, by industry standards, fairly optimistic. As fleets grow, it becomes nearly
impossible to maintain the average utilisation above 85% in all but the most heated
markets. There are many reasons for downtime - vessels come off charter and it may
be more than a month before the next charter starts (if there is even a next charter),
vessels moving between areas of operation earn no income, there is a mandatory
dry-docking and recertification process when a vessel hits five years old and every
three years thereafter, accidents can and do occur that require immediate repairs,
etc. Local peers such as Ezra and Swiber have reported fleet utilisation rates around
65%-70% recently.
A 1% change in the utilisation rate changes FY13F/FY14F revenues by USD1.68m/
USD1.94m. As costs are mostly fixed and vessel chartering under the Singapore flag
is tax-free, these are very nearly the impact on the bottom lines.
We estimate that a 1% change in the utilisation rate has a 5.9%/4.5% impact on
FY13F/FY14F net profit, making it the single largest risk factor.
Cabotage has created segmented markets – undersupply in protected areas,
oversupply outside. Leads to negative operational and stock price risks. The
implementation of the cabotage law in Indonesia on 1 Jan 2013 hit Jaya hard, with
three vessels having contracts cancelled and leaving Indonesian waters. The same
happened for a (small) number of other vessels. These vessels are now contributing
to the oversupply situation outside of Indonesia and Malaysia, which have now
become premium-charter regions.
The relative oversupply of OSVs in unprotected areas has led to a wide disparity in
charter rates, with Indonesia and Malaysia commanding 20% to 30% higher rates.
This has depressed OSV-chartering margins for players like Ezra and Swiber who
have few vessels flagged Malaysian or Indonesian, and Jaya is in the same category
with a large number of Singapore-flagged vessels.
On the operational front, the risk to Jaya is on the downside. Peers have already
reported lower utilisation rates and margins. We expect Jaya to report a weak
3QFY13 on similar reasons. However, Jaya’s stock price has failed to correct, and
therefore the price risk is similarly loaded heavily on the negative.
IHC-Merwede winning contracts for Supporter-class vessels is key upside risk.
Jaya’s collaboration with IHC-Merwede is a potential positive for the stock. Three
conditions must be satisfied for a strong rerating: i) Enough work must be won to
bring utilisation at Jaya’s yards up to a satisfactory level, ii) The contract prices must
be high enough to provide a healthy margin, and iii) The profit-sharing arrangement
with IHC-Merwede needs to result in a material improvement to Jaya’s bottom line.
16
03 May 2013
Our Vessel Chartering Model
Our forecasts are based on optimistic 78% utilisation. We have modeled Jaya’s
ship chartering operations assuming a healthy 78% utilisation for 4QFY13 and
beyond. Our industry sources inform us that a number of vessels are coming offcharter in 3QFY13, which in addition to the vessels expelled from Indonesia, would
lower the utilisation rate to about 68%.
Figure 21 Ship-chartering operations from FY13F to FY15F
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
AHTS
DJM Fortune 3
Jaya Scout
Jaya Amandam
Jaya Amara
Jaya Amethyst
Jaya Treasure 2
Jaya Almighty
Jaya Seal
MDPL Conqueror
Jaya Cavalier
Jaya Concordia
MDPL Continental One
Jaya Confidence
Jaya Centurion
Jaya Coral
Jaya Chieftain
Jaya Crystal
Ossoy (ex. Dauphin)
Jaya Defender
Sea Hawk 1
Jaya Majestic
Jaya Sovereign
AHT
22 Jaya Mermaid 3
BHP
4,750
4,750
4,800
4,800
4,800
5,150
5,150
5,500
8,000
8,000
8,000
8,000
8,000
8,000
8,000
8,160
8,000
10,800
10,800
12,069
12,070
16,094
Maximum
DayRate Daily
per bhp (USD'000)
1.40
6.7
1.40
6.7
1.50
7.2
1.50
7.2
1.50
7.2
1.40
7.2
1.50
7.7
1.50
8.3
1.40
11.2
1.80
14.4
1.80
14.4
1.40
11.2
1.80
14.4
1.80
14.4
1.80
14.4
1.80
14.7
1.80
14.4
1.40
15.1
1.80
19.4
1.80
21.7
1.80
21.7
2.00
32.2
2Q13
612
612
662
662
0
663
0
759
1030
1325
1325
1030
1325
1325
0
1351
0
1391
1788
1999
0
0
(Oct to Dec)
Hire days
92 / 92
92 / 92
92 / 92
92 / 92
0 / 92
92 / 92
0 / 92
92 / 92
92 / 92
92 / 92
92 / 92
92 / 92
92 / 92
92 / 92
0 / 92
92 / 92
0 / 92
92 / 92
92 / 92
92 / 92
0/ 0
0/ 0
3Q13
599
206
310
504
0
252
0
743
1008
1296
1152
986
1267
1296
576
0
946
469
875
978
0
0
BHP DayRate
5,150
1.30
6.7
616
DP2 ROVSV
Jaya Pioneer
Jaya Pearl
Jaya Prestige
Jaya Progress
ROV P6
BHP DayRate
6,000
20,000
6,000
20,000
6,000
20,000
6,000
20,000
6,000
20,000
20.0
20.0
20.0
20.0
20.0
1840
1840
0
0
0
92
92
0
0
0
92
92
0
0
0
1520
1800
0
0
0
AW Barge
DWT DayRate
9,900
28,000
28.0
2576
92 / 92
MP Maintenance
29 Jaya Pride
DWT DayRate
5,150
26,000
26.0
0
0 / 92
DWT DayRate
4,500
30,000
4,500
30,000
3,500
22,000
3,500
22,000
30.0
30.0
22.0
22.0
0
0
0
0
0
0
0
0
DWT DayRate
9,900
1,000
9,000
1,000
9,000
1,000
1.0
1.0
1.0
92
92
92
23
24
25
26
27
30
31
32
33
PSV
Jaya Valour
Jaya Vigilant
Jaya Victory
Jaya Valiant
Flat Top Barges
34 Jaya 300
35 Jaya 301
36 Jaya 302
Model Revenue (USD'000)
Actual Revenue (USD'000)
Utilisation Rate
Revenue error
Actual utilisation rate
92 / 92
/
/
/
/
/
/
/
/
/
0
0
0
0
92 / 92
92 / 92
92 / 92
25,008 2116 / 2576
25,231
82%
603
(Jan to Mar)
Hire days
90 / 90
31 / 90
43 / 90
70 / 90
0 / 90
35 / 90
0 / 90
90 / 90
90 / 90
90 / 90
80 / 90
88 / 90
88 / 90
90 / 90
40 / 90
0 / 90
31 / 90
31 / 90
45 / 90
45 / 90
0/ 0
0/ 0
90 / 90
91 / 91
1820
1820
0
0
0
91
91
0
0
0
868
31 / 90
2548
91 / 91
1170
45 / 45
2366
91 / 91
1830
0
0
0
61
0
0
0
90
90
90
19,692
0
0
0
0
/
/
/
/
/
609
(Apr to Jun)
Hire days
91 / 91
91 / 91
91 / 91
0 / 91
0 / 91
0 / 91
91 / 91
91 / 91
91 / 91
91 / 91
91 / 91
91 / 91
0 / 91
91 / 91
0 / 91
91 / 91
0 / 91
91 / 91
91 / 91
91 / 91
0/ 0
0/ 0
90
90
0
0
0
0
0
0
0
76
90
0
0
0
4Q13
605
605
655
0
0
0
703
751
1019
1310
1310
1019
0
1310
0
1337
0
1376
1769
1977
0
0
/
/
/
/
0
0
0
0
90 / 90
90 / 90
90 / 90
1679 / 2475
68%
91
91
90
/
/
/
/
/
/
/
/
/
91
91
0
0
0
61
0
0
0
91 / 91
91 / 91
91 / 91
27,013 2063 / 2609
79%
-0.9%
80%
17
03 May 2013
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
AHTS
DJM Fortune 3
Jaya Scout
Jaya Amandam
Jaya Amara
Jaya Amethyst
Jaya Treasure 2
Jaya Almighty
Jaya Seal
MDPL Conqueror
Jaya Cavalier
Jaya Concordia
MDPL Continental One
Jaya Confidence
Jaya Centurion
Jaya Coral
Jaya Chieftain
Jaya Crystal
Ossoy (ex. Dauphin)
Jaya Defender
Sea Hawk 1
Jaya Majestic
Jaya Sovereign
AHT
22 Jaya Mermaid 3
BHP
4,750
4,750
4,800
4,800
4,800
5,150
5,150
5,500
8,000
8,000
8,000
8,000
8,000
8,000
8,000
8,160
8,000
10,800
10,800
12,069
12,070
16,094
Maximum
DayRate Daily
per bhp (USD'000)
1.40
6.7
1.40
6.7
1.50
7.2
1.50
7.2
1.50
7.2
1.40
7.2
1.50
7.7
1.50
8.3
1.40
11.2
1.80
14.4
1.80
14.4
1.40
11.2
1.80
14.4
1.80
14.4
1.80
14.4
1.80
14.7
1.80
14.4
1.40
15.1
1.80
19.4
1.80
21.7
1.80
21.7
2.00
32.2
FY14
1762
1762
1908
1908
1908
1911
2047
2186
2968
3816
3816
2968
3816
3816
3816
3892
3816
4007
5152
5757
5757
0
Hire days
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 270
0/ 0
FY15
1762
1762
1908
1908
1908
1911
2047
2186
2968
3816
3816
2968
3816
3816
3816
3892
3816
4007
5152
5757
5757
0
Hire days
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
265 / 365
0/ 0
DP
NO DP
NO DP
DP-1
DP-1
DP-1
NO DP
DP-1
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
DP-2
BHP DayRate
5,150
1.30
6.7
1774
265 / 365
1774
265 / 365
DP
NO DP
DP2 ROVSV
Jaya Pioneer
Jaya Pearl
Jaya Prestige
Jaya Progress
ROV P6
BHP DayRate
6,000
20,000
6,000
20,000
6,000
20,000
6,000
20,000
6,000
20,000
20.0
20.0
20.0
20.0
20.0
5300
5300
3000
0
0
265
265
150
0
0
365
365
150
0
0
5300
5300
5300
3020
1220
265
265
265
151
61
DP
DP-2
DP-2
DP-2
DP-2
DP-2
AW Barge
DWT DayRate
9,900
28,000
28.0
8260
295 / 365
8260
295 / 365
DP
n.a.
MP Maintenance
29 Jaya Pride
DWT DayRate
5,150
26,000
26.0
7670
295 / 365
7670
295 / 365
DP
DP-2
DWT DayRate
4,500
30,000
4,500
30,000
3,500
22,000
3,500
22,000
30.0
30.0
22.0
22.0
9750
9750
3300
1342
325
325
150
61
365
335
150
61
9750
9750
7150
7150
325
325
325
325
DP
DP-2
DP-2
DP-2
DP-2
DWT DayRate
9,900
1,000
9,000
1,000
9,000
1,000
1.0
1.0
1.0
365
365
365
365 / 365
365 / 365
365 / 365
365
365
365
Model Revenue (USD'000)
Actual Revenue (USD'000)
Utilisation Rate
125,331
23
24
25
26
27
30
31
32
33
PSV
Jaya Valour
Jaya Vigilant
Jaya Victory
Jaya Valiant
Flat Top Barges
34 Jaya 300
35 Jaya 301
36 Jaya 302
Notes:





/
/
/
/
/
/
/
/
/
9056 / 11551
78%
141,529
/
/
/
/
/
/
/
/
/
365
365
365
151
61
365
365
365
365
365 / 365
365 / 365
365 / 365
DP
n.a.
n.a.
n.a.
9822 / 12622
78%
AHTS charter rates are estimated taking into account vessel BHP, bollard pull, DP capability, location, and charter type.
Day-rates in bold indicate vessels on bareboat charter.
AWB, MP Maintenance, PSVs, and barges all assumed to be on time charters.
In addition to the three vessels expelled from Indonesia at the end of 2QFY13, a number of charters expire in 3QFY13
according to industry sources, accounting for the significant drop in utilisation rate.
Jaya management was not consulted during the construction of this model.
Source: Industry sources, OSK-DMG
18
03 May 2013
SWOT Analysis
 Young, modern fleet of OSVs
 Indonesia
cabotage may
contribute to
lower charter
rates outside
Indonesia
 Singapore yard has a track record building AHTS
vessels up to 16,000bhp
 Lackluster
results from
peers like Ezra
and Swiber may
spur price
competition to
secure contracts
 Strong industry
backdrop with
increasing E&P
expenditure
budgets in the
ASEAN region
 Large drilling rig
order book and
positive
sentiment on rig
order flows
contribute to
increasing enduser demand
 High cost of vessels ordered in 2007 boom times
 Under-utilised yards a drag on performance
 Having recently emerged from bankruptcy protection,
financial position is questioned within the industry,
potentially delaying contract wins
Figure 22
Figure 23
P/E (x) vs EPS growth
P/BV (x) vs ROAE
4
-15%
2
-28%
0
-40%
P/E (x) (lhs)
EPS growth (rhs)
0.80
13%
0.60
10%
0.40
7%
0.20
3%
0.00
0%
P/B (x) (lhs)
Jan-15
-3%
17%
Jan-14
10%
6
1.00
Jan-13
8
20%
Jan-12
23%
1.20
Jan-11
10
Jan-15
35%
Jan-14
12
Jan-13
48%
Jan-12
60%
14
Jan-11
16
Return on average equity (rhs)
Company Profile
Jaya is an owner and charterer of Offshore Support Vessels (OSVs). It also owns and operates two shipyards in which it is building
vessels for its own fleet.
19
03 May 2013
Company Background
Figure 24 History
Date
2012
2012
2011
2007
2006
2006
2004
Details
Jaya And IHC Merwede sign collaboration agreement
Successful launching of first 16,000bhp AHTSV – Jaya Supreme
Successful renewal of JTC lease for another 10 years
Acquired Nantong Dongjiang Shipyard Co., Ltd
Asia's Top 200 Small and Midsize Companies by Forbes Asia
Group achieved a net profit of over S$ 100 Million for the first time, during the year ended 31 June 2006.
• Entered into outsourcing arrangements for shipbuilding constructions with 6 Chinese Shipyards
• Obtained the ISO 14001:1996 for Environment friendly measures taken by the Group
• Obtained the OHSAS 18001: 1999 standards for maintaining safe and healthy work place
2002 Group’s Singapore and Batam Shipyards obtained the ISO 9001:2000 Certifications for shipbuilding and shiprepairing works.
1994 Jaya was listed on the SGX Main board-April 1994
1993 • Set up the Tuas Yard in Singapore
• Acquired shipyard at Batam, Indonesia
• Diversified into conventional and container vessel sector
1992 Jaya Holdings Ltd was established as a holding company and Listed on the Singapore Stock Exchange-Sesdaq.
1988 Diversified into the ship repair business
1981 Incorporated as a ship owning company, Java Marine Lines Pte Ltd. Purchased first vessel, a tugboat.
Source: Company
Figure 25 Jaya’s shipyards
Source: Company
20
03 May 2013
Figure 26 Company structure
Source: Company
Figure 27 Key management
Stephen Le,
Non-Executive
Chairman
Appointed as Chairman of the Group since 31 March 2011. He is currently a Managing Director and Head of Deutsche Bank’s
Strategic Investment Group (“SIG”) in Asia Pacific. He joined the SIG in 2001 to build out the trading business in the region. In
2004, he built out Deutsche Bank's Greater China investment activities which included managing a significant 3rd party coinvestment programs investing in state owned enterprise restructuring, distressed corporates and real estate, NPL portfolio and
other strategic joint ventures. Prior to joining Deutsche Bank, Mr Le worked at Goldman Sachs in a top ranked equity research
team focused on energy and petrochemical companies.
Venkatraman
Sheshashayee, CEO
& Executive Director
Appointed as Executive Director on 16 January 2012. As the Chief Executive Officer of the Group, Mr Sheshashayee is responsible
for the promotion, development and extension of the business of the Group as well as the overall management of the Group’s
operations. In addition, he sits on the board of Intervention (India) Pvt. Ltd. Prior to joining the Group, he has had over 25 years of
experience with two multinational companies in shipping, manufacturing and offshore oilfield services. Mr Sheshashayee is a
Marine Engineer, and has an MBA from IIM Bangalore.
Chong Chow Pin,
CFO
Appointed as CFO on 27 November 2012. Prior to joining Jaya Holdings Ltd, Mr Chong was Vice President at United Test
Assembly Center Ltd where he oversaw the group's treasury activities including cash management, financial risk management and
taxation, advised and executed corporate development activities including M&A, joint-ventures and strategic alliances, managed
relationship with creditors and rating agencies, and monitored industry and capital markets.
George R. Horsington,
President - Offshore &
Business
Development
Mr. Horsington joined Jaya in Sep 2012 and is responsible for business development, profit and loss for the fleet of owned and
chartered vessels, operational excellence of the fleet, including technical management, operational requirements and readiness. He
will also be in charge of marketing the ship-building/ship-repair business. Prior to Jaya, he spent 10 years at Swire Pacific Offshore
as its General Manager and International Marketing Manager.
Source: Company
21
03 May 2013
Appendix I: Glossary of Technical Terms
AHTS: Anchor Handling Tug Supply (vessel). Dual-purpose tugs designed for
anchor-handling / towage and offshore supply duties. Main purpose to perform
anchor-handling duties and towage of offshore drilling units, construction vessels and
floating production units. Also used to supply cargoes. AHTS are the general
workhorse of the offshore oil industry.
Bareboat charter: A contract to hire a vessel whereby no crew nor provisions are
included as part of the agreement.
bhp: brake-horsepower. A measure of the amount of power a motor can generate.
DP-1/2/3: Dynamic Positioning, comes in “levels” One to Three. DP allows a vessel
to remain in a fixed geographical position or in a fixed position relative to another
vessel / platform. The levels One to Three denote the number of systems contributing
to this ability, with higher numbers indicating greater sophistication and redundancysystems. DP systems allow OSVs to be operated at a much higher level of safety
than one without.
dwt: deadweight tons. Denotes the weight of cargo / supplies / crew that a vessel is
rated to carry.
E&P: Exploration & Production. The key part of upstream oil & gas activities, involves
the search for commercially-viable reservoirs of oil & gas and extracting the
resources from these wells.
OSV: Offshore Support Vessel. A general classification for vessels that support oil
platforms on their exploration & production duties, including AHTS, PSVs, ROV
vessels, accommodation work barges, etc.
PSV: Platform Supply Vessel. Transports liquid, dry cargo and crew to and from
offshore installations, drilling rigs and construction vessels. Has a larger free deck
area for transportation of containers, pipes and other cargo.
ROV: Remotely Operated Vessel. Robotic assets controlled via cable to perform
subsea operations. In Jaya’s context, “ROV” generally refers to ROV vessels from
which the ROVs are operated.
Time charter: A contract to hire a vessel for a fixed period for a fixed periodical sum,
with the charterer bearing the operational costs incurred. Time charters offer stable
long-term incomes and cash flow, but tend to be fixed at a lower charter rate than
voyage charters.
Voyage charter: A contract to hire a vessel for a given journey for a fixed sum,
whereby the owner will bear the operational costs incurred. Voyage charters are
usually used by charterers to plug temporary shipping demand, and the uncertainty of
hire usually causes a premium over time charter rates.
22
03 May 2013
Recommendation Chart
Price Close
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
May-08
Aug-09
Nov-10
Feb-12
Source: OSK-DMG Estimates, Bloomberg
Date
Recommendation
Target Price Price
2013-05-03
Source : OSK-DMG Estimates, Bloomberg
23
RHB Guide to Investment Ratings
DMG & Partners Research Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading
Buy:
Share
may10%
exceed
over 12
themonths
next 3 months, however longer-term outlook remains uncertain
Buy:
Share
price
mayprice
exceed
over15%
the next
Neutral: Buy:
ShareShare
price price
may fall
within
the 15%
rangeover
of +/the next
12 months
Trading
may
exceed
the10%
nextover
3 months,
however
longer-term outlook remains uncertain
Take Profit:
Target
been attained.
accumulate
lower
Neutral:
Share
priceprice
may has
fall within
the rangeLook
of +/-to10%
over theatnext
12 levels
months
Sell:
may
fall has
by more
10% over
next 12 months
Take Share
Profit:price
Target
price
beenthan
attained.
Look the
to accumulate
at lower levels
Not Rated:
is not
regular
coverage
Sell:
Share Stock
price may
fallwithin
by more
thanresearch
10% over
the next 12 months
Not Rated: Stock is not within regular research coverage
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Jaya Holdings Sell Why Pay 14x P/E for 5.6% ROE?

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