june 24, 2014 sector focus - pt trimegah sekuritas ... · pt trimegah securities tbk - sector focus...

PT Trimegah Securities Tbk - www.trimegah.com 1SECTOR FOCUS

OVERWEIGHT

MARKET CAP

Bullish on long-term outlook

Although oil and gas production declined by 2% CAGR in 2006-14E,

upstream investment in oil and gas industry increased by 14% CAGR in

the same period with investment in specifi cally exploration increasing at a

faster rate of 16% CAGR. We think the better way to invest is not in the

upstream oil and gas companies however, but in the oil and gas services

companies. These companies benefi t from the same trend without having

to bear the exploration risk.

Similar but not exactly the same

All three companies (Wintermar, Logindo, and Elnusa) provide oil and gas

services, but Logindo and Wintermar focus on offshore business while

Elnusa provides a wider variety of services with offshore only accounting

for ~10% of revenue. Strategy wise, Logindo and Wintermar will benefi t

from the following thematics: 1) More offshore exploration and production

in the future, and 2) Cabotage. On the other hand, we think Elnusa can

grow simply by gaining market share of oil and gas services from its parent

company Pertamina. Among the three, Elnusa has the balance sheet with

0.2x 2014E net debt to EBITDA versus Wintermar’s 1.9x and Logindo’s

3.5x.

2014-17 EBITDA CAGR of 18-24%, EPS CAGR of 18-28%

We expect Wintermar/Logindo/Elnusa to post 24/24/18% EBITDA CAGR

2014-17 which translate to 28/26/18% EPS CAGR in the same period.

Contracts are usually for 1-5 years implying good earnings visibility for at

least one year ahead. In the past three years, Wintermar and Elnusa have

managed to match or beat expectations (Logindo went public in Dec 2013).

Overweight sector, Buys on Wintermar (WINS), Logindo (LEAD),

and Elnusa (ELSA)

We initiate the sector with overweight and Buys on all three stocks under

coverage, in order of preference: Wintermar (WINS, Buy, TP 1600),

Logindo (LEAD, Buy, TP 6700), and Elnusa (ELSA, Buy, TP 810). Wintermar

is our top pick despite higher upside on Logindo because of Wintermar is

less leveraged and the stock’s better liquidity (USD180k daily trading value

versus Logindo’s 66k).

Plenty of growth without exploration risk

Stock Code

RatingPrice

24-jun-14

Target Price(Rp)

M Cap (Rptr)

Ups Potential

(%)

PE(x)

P/BV(x)

COMPANIES DATA

Sector FocusOil & Gas Services Sebastian Tobing

([email protected])

JUNE 24, 2014

ELSA

39%

WINS

38%

LEAD

23%

WINS BUY 1,175 1,600 4,697 36.2% 13.9 2.0

ELSA BUY 630 810 4,598 28.6% 16.6 2.0

LEAD BUY 4,275 6,700 2,754 56.7% 11.7 1.9

Share Price TP Ups

WINS 1,175 1,600 36%

ELSA 630 810 29%

LEAD 4,275 6,700 57%

PT Trimegah Securities Tbk - www.trimegah.com2 SECTOR FOCUS

1,160 1,123 1,384 1,441 1,426 1,397 1,368 1,300 1,332 1,422 1,582 1,503 1,455 1240 1224

2,576 2,464

2,636 2,588 2,522 2,459 2,374 2,255 2,309 2,371 2,526

2,405 2,315

2,080 2,044

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E

2014E

Gas -0.4% CAGR in 2000-12 Oil -3.8% CAGR in 2000-12

Production is on a decline…

Indonesia’s oil and gas production is on a decline as a whole as oil declined by 3.8% CAGR in 2000-14E while gas

declined by -0.4% CAGR in 2000-14E with Tangguh LNG project only providing a brief rebound in 2010. The

decline in production can be attributed to various factors including declining old oil fi elds (largest producing oil

fi eld in Indonesia was discovered in 1944) and the “easy” potential oil fi elds already well explored. However, our

discussions with people in the industry suggest that there is still oil and gas to be discovered, albeit more likely

to be offshore and more likely to require more advanced technology.

FIGURE 1. INDONESIA’S OIL AND GAS PRODUCTION

Source: SKK Migas (upstream oil and gas regulator)

…and policy uncertainties have not helped either…

Policy uncertainties have not helped either, as recently the upstream supervisory body (BP Migas) was declared

unconstitutional by the court and had to be replaced by a similar body called SKK Migas. Unfortunately, the head

of the newly formed SKK Migas was embroiled in a corruption case shortly after, and as a result contracts approval

have been slower than usual. Indonesia will hold a presidential election in July 9th and we expect whoever wins

will attempt to improve upstream regulatory situation as both presidential candidates are well aware that Indonesia

needs to increase (or at least maintain) oil and gas production in order to improve government’s fi nances (this

year’s projected budget defi cit is 2.4%, already near the max 3% limit allowed by law). Meanwhile, the short-

term impact is Elnusa, Wintermar, and Logindo having shorter-term contracts. These shorter-term contracts are

potentially of higher margin but it is more diffi cult to secure long-term loans.

…but strong growth in investment spending

Upstream investment grew strongly across all segments in 2006-14. More encouragingly, exploration spending

(which is the most risky type of spending as it is not covered by cost recovery) grew the most at 31% CAGR,

particularly in the past three years. It is encouraging that since the upstream supervisory body (BP Migas) was

disbanded and replaced by SKK Migas at end of 2012, upstream investment still grew by 17% in 2013.

We estimate upstream investment to grow by 9% to USD21bn in 2014. Although this is 18% below SKK Migas’

target of USD26bn (we assume lower as Jan-May metrics show drillings are behind target), a 9% acceleration is

still respectable given the challenges (corruption issues at SKK Migas, election year). We assume some delays in

exploration spending this year but expect development and production spending to growth of 21% and 11%,

respectively.


5059

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60

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120

140

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200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1) Exploration of new working areas

This implies that contractors that won their bid for exploration working areas (14% CAGR in 2006-12) did spend

for exploration after winning their bids.

FIGURE 2. UPSTREAM INVESTMENT

in USD mn 2006 2007 2008 2009 2010 2011 2012 2013 2014E CAGR 2006-14

Exploration 431 474 532 633 670 720 1,560 1,877 1,376 16%

Administration 636 869 981 730 833 932 1,061 1,199 1,219 8%

Development 1,876 2,088 2,523 2,671 2,495 3,140 3,299 4,306 5,213 14%

Production 4,639 5,711 6,579 6,391 7,033 9,140 10,623 11,906 13,228 14%

Total 7,582 9,142 10,615 10,425 11,031 13,932 16,543 19,288 21,035 14%

6% 26% 19% 17% 9%

source: SKK Migas

FIGURE 3. NUMBER OF EXPLORATION WORKING AREAS

Source: SKK Migas

FIGURE 4. WORKING AREAS DIVIDED BY ONSHORE, OFFSHORE, AND ON/OFFSHORE

Source: SKK Migas

2) More drilling done in offshore areas

Data shows that of the 254 total working areas (including exploration and producing working areas) at end of

2012, 98 are offshore, more than the 89 onshore and 49 on/offshore working areas. Exploration, seismic, and

drilling an offshore fi eld is substantially more expensive than onshore. Drilling an onshore well can cost between

USD20mn to 100mn depending on depth and diffi culty, whereas an onshore well can cost between USD1 to 15mn.

Onshore

38%

Offshore

41%

Onshore/Offshore

21%


3) Old wells require more investment to produce the same level of oil

As an example, Medco Energi used EOR (Enhanced Oil Recovery) program in its Rimau block since 2010, which is

essentially injecting water or gas into the oil fi eld just to reduce the rate of oil production decline in the block. It

is more expensive and thus, margin is lower if using enhanced oil recovery, but the production sharing system in

Indonesia encourages contractors to try employing such EOR program (because cost recovery is shared with

government).

Rules favor locals

We believe currently the oil and gas services sector in Indonesia is still dominated by foreign players i.e.

Schlumberger, but Indonesian government has been encouraging domestic companies to take a bigger role. Local

components level has increased from ~40% in 2006 to ~60% after 2010. Indonesian government has also

introduced cabotage rule in 2008 that gradually requires all vessels to be registered in Indonesia and pays

Indonesian tax (which is 3% of revenue versus 0% tax in Singapore). At end of this year, all of seismic related

vessels will have to have Indonesian fl ags and by end of next year, all of drilling related vessels have to have

Indonesian fl ags. Drilling usually entails the highest daily fee, which implies potential growth upside for Wintermar

and Logindo, which have been investing in higher-tiered vessels to prepare for implementation of the cabotage

rule.

FIGURE 5. LOCAL COMPONENTS OF ALL WORKS DONE IN INDONESIA’S

OIL AND GAS INDUSTRY

in USD mn 2006 2007 2008 2009 2010 2011 2012

Service 5,862 4,737 6,568 5,408 6,976 8,109 11,388

Goods 995 1,846 1,400 3,577 3,811 3,706 4,965

Total 6,857 6,583 7,968 8,985 10,787 11,815 16,353

Local component 43% 54% 43% 49% 63% 61% 60%

source: SKK Migas

FIGURE 6. CABOTAGE DEADLINE

Type of vessel Deadline

Oil and gas survey

Seismic survey 14-Dec

Geophysical survey 14-Dec

Geotechnical survey 14-Dec

Drilling

Jack up rig 15-Dec

Semi submersible rig 15-Dec

Deep water drill ship 15-Dec

Tender assist rig 15-Dec

Swamp barge rig 15-Dec

Offshore construction

Derrick/crane, pipe/cable/subsea umbilical riser and fl owline (SURF) laying barge/vessel 13-Dec

Diving support vessel 12-Dec

Offshore operations support

Anchor handling tug supply vessel more than 5000 BHP with Dynamic position 12-Dec

Platform supply vessels 12-Dec

Diving support vessel 12-Dec

Dredging

Drag-head suction hopper dredger 13-Dec

Trailing suction dredger 13-Dec

source: SKK Migas, Wintermar Offshore, Logindo Samudra Makmur


15.7%

18.1% 18.5% 17.9%

26.6%

23.8%24.6%

25.6%24.0% 24.1%

25.9%

28.4%

0%

5%

10%

15%

20%

25%

30%

Revenue CAGR 2014-17E EBITDA CAGR 2014-17E EBIT CAGR 2014-17E Core profit CAGR 2014-17E

Elnusa Wintermar Logindo

The three oil and gas services companies – similar but not exactly the same

In this report, we initiate coverage on the three public-listed oil and gas service companies: Elnusa (ELSA),

Wintermar Offshore (WINS), and Logindo Samudra Makmur (LEAD). Elnusa provides the widest range of services

(onshore, offshore, full seismic, etc), while Wintermar and Logindo are more focused on offshore oil and gas

services that require investment in vessels. All three companies conduct their business in USD (US Dollar) and

Wintermar along with Logindo use USD based accounting but Elnusa uses Rupiah accounting. This is a matter of

preference by Pertamina, Elnusa’s parent company. Their customer profi le also differ, whereby Pertamina is 50%

of Elnusa’s revenue (implying Elnusa can grow substantially if it can get more contracts from Pertamina) while

Wintermar and Logindo’s large customers are third parties.

Elnusa’s 2014 after tax EBIT ROIC (Return On Invested Capital) of 24% is higher than Wintermar’s 16% and

Logindo’s 12%. We think this is mainly due to: 1) Elnusa’s captive (but low growth) businesses in seismic and

downstream (i.e. fuel distribution) provide very high ROIC, and 2) Wintermar and Logindo not fully utilizing their

vessels yet. We expect the gap to narrow gradually as Elnusa needs to invest to grow and as Wintermar and

Logindo’s vessels utilization rates improve.

Wintermar and Logindo are much more similar (versus Elnusa) as they both focus on offshore oil and gas services,

but slightly differ in strategy as Wintermar also charters (rents) vessels owned by others to be used in providing

oil and gas services. This is a much lower margin business with gross margin of only 7% versus 52% gross margin

on own vessels, but it helps increase Wintermar’s ROIC. Wintermar’s 52% gross margin on own vessels is similar

to Logindo’s 50% gross margin (Logindo only provides services using own vessels). The upside of Wintermar’s

strategy (aside from higher ROIC) is that it allows the company to develop track record with a wider client base

so it can grow quicker when it buys new vessels. The downside is that having a wider client base sometimes mean

including smaller contractors on exploration wells, which have higher risk of defaulting on payment (a rare

occurrence and Wintermar’s long experience should be a positive factor in risk management).

Source: Trimegah research

FIGURE 7. ELNUSA, WINTERMAR, AND LOGINDO’S GROWTH IN 2014-17E


Elnusa (ELSA)

Wintermar Offshore (WINS)

Logindo Samudra Makmur (LEAD)

Business profi le

A wide range of products includ-ing drilling, hydraulic workover, barges, EPC etc. Mostly onshore services with offshore only ~10% of revenue

Focus on offshore oil and gas ser-vices including vessel services to move clients' rigs, logistic solu-tions etc.

Focus on offshore oil and gas ser-vices including vessel services to move clients' rigs, logistic solu-tions etc.

Strategy

Simply getting more business from parent company Pertamina can boost Elnusa's revenue signifi -cantly. Currently Pertamina is 50% of Elnusa's revenue but Elnusa's revenue is only 4% of Pertamina's costs.

Wintermar plans to remained fo-cused in offshore oil and gas ser-vices. It plans to improve margins by investing in higher end, larger vessels. Wintermar also does charter service (middle man) that rents vessels to be re-rented to clients. Hence, when Wintermar builds new vessel, it does not have to look for new clients, just replace the rented vessels with its own vessels.

Logindo plans to remained fo-cused in offshore oil and gas ser-vices. It plans to improve margins by investing in higher end, larger vessels. The difference between Logindo and Wintermar: Logindo does not do charter service (mid-dle man). This makes their over-all margins look much better than Wintermar (margins on own ves-sels are similar).

Clients' profi le ~50% of revenue is from Elnusa's majority shareholder: Pertamina (and subsidiaries).

More diverse revenue, 38% of FY2013 revenue was from Berau BP (Tangguh LNG) and Conoco Phillips Indonesia

Majority or 79% of revenue (FY2013) is from Total Indonesia (Kalimantan) and Pertamina

Growth profi le

We expect Elnusa's revenue to grow at 16% CAGR, EBITDA to grow at 18% CAGR, and core prof-it to grow at 18% CAGR 2014-17E

We expect Wintermar's revenue to grow at 27% CAGR driven by high-er utilisation of vessels from 48% in 2014 to 60% in 2017E. EBITDA to grow at 24% CAGR, and core profi t to grow at 26% CAGR 2014-17E

We expect Logindo's revenue to grow at 20% CAGR driven by high-er utilisation of vessels from 60% in 2014 to 65% in 2017E. EBITDA to grow at 20% CAGR, and core profi t to grow at 26% CAGR 2014-17E

Balance sheet

Elnusa is least leveraged with net cash position at end of 2013. The company needs to invest heav-ily to grow revenue and we ex-pect net debt to EBITDA of 0.2x in 2014, 0.5x in 2015 and 0.7x in 2016, still a very healthy level

Offshore O&G services are high ca-pex business. Wintermar has net debt to EBITDA of 1.6x in 2013, which we expect to rise to 1.9x in 2014 before peaking at 2.3x in 2015

Offshore O&G services are high capex business. Logindo has a net debt to EBITDA of 3.4x in 2013 that we expect to peak at 3.5x in 2014. Note that 2012 net debt to EBITDA was even higher at 5.3x

Return profi le

We expect Elnusa's EBIT ROIC (af-ter tax) to normalize from 24% in 2014 to 19% in 2017. This is higher than Elnusa's WACC of 10%

We expect Wintermar's EBIT ROIC (after tax) to rise from 16% in 2014 to 17% in 2017. This is high-er than Wintermar's WACC of 11%

We expect Logindo's EBIT ROIC (after tax) to rise from 12% in 2014 to 15% in 2017. This is high-er than Logindo's WACC of 10%

Ownership

Majority owned by Pertamina (41%), a state-owned enterprise that specializes in oil and gas busi-ness. Pertamina is one of Indone-sia's largest state-owned compa-nies.

Majority owned by founder Mr. Sugiman Layanto and family

Approximately 36% owned by the Logam family and 35% owned by Pacifi c Radiance, a Singapore-based integrated offshore marine services company

Management

3 of 5 BoD members have back-ground in various Pertamina's subsidiaries, while the recently ap-pointed CEO spent 17 years with Medco Energi Group and COO had experience with various drilling companies

Wintermar's CEO is also founder and still a majority owner.

BoD is split between Logam fam-ily (founder) and Pacifi c Radiance (Malaysian investor, which also has its own vessels, listed in SG). CEO is also the founder of the company

Corporate Governance (CG)

Elnusa's CG has much improved since corruption issues surfaced in 2010 (whole BoD was changed afterward). Margins have risen ev-ery year since then and cash fl ow has improved (net cash at end of 2013). FY2013 result was audited by PWC, a top four accounting fi rm.

Has positive track record since it went IPO in 2010 and very good disclosure. FY2013 result was au-dited by RSM AAJ.

Logindo also provides good dis-closure but less track record as it went IPO only recently. FY2013 re-sult was audited by EY, a top four accounting fi rm.

FIGURE 8. COMPARISON BETWEEN ELNUSA, WINTERMAR, AND LOGINDO



Growth outlook

FIGURE 9. ELNUSA, WINTERMAR, AND LOGINDO’S GROWTH IN 2014-17E

Source: Trimegah Research

FIGURE 10. EBIT ROIC 2014, 2017, AND WACC

Source: Trimegah Research

15%16%

15%14%

27%

24% 25%26%

24% 24%26%

28%

0%

5%

10%

15%

20%

25%

30%

Revenue CAGR 2014-17E EBITDA CAGR 2014-17E EBIT CAGR 2014-17E Core profit CAGR 2014-17E


Wintermar’s EBIT ROIC will improve from 16% in 2014 to 17% in 2017 while Logindo’s EBIT ROIC will improve from

12% in 2014 to 15% in 2017. This is due to higher utilization rate (which we measure by projected revenue divided

by potential revenue if their vessels are used every day in a year) from 48% and 60%, respectively, in 2014, to 60%

and 65% in 2017. Note that we cap our long-term utilization rates for both Wintermar and Logindo at 65%.

As a result, Wintermar’s EBIT ROIC to WACC spread will improve from 5% in 2014 to 7% in 2017 while Logindo’s

will improve from 2% in 2014 to 5% in 2017. Elnusa’s ROIC to WACC spread will normalize from 14% in 2014 to

9% in 2017.

24%

16%

12%

19.2%

17.1%

14.9%

9.7%10.6% 10.3%

0%

5%

10%

15%

20%

25%


EBIT ROIC 2014E EBIT ROIC 2017E WACC

Wintermar and Logindo’s ROIC to improve, Elnusa’s to normalize

Elnusa has the highest 2014 EBIT ROIC (after tax) at 24%, followed by Wintermar’s 16% and Logindo’s 12%. We

believe this is due to some of Elnusa’s businesses are not capex intensive, i.e. seismic data bank, fuel trading

business. Since top-line growth in these businesses are declining, Elnusa will need to expand into more capex

intensive oil and gas services businesses (this year’s planned capex of Rp1.2tn is 11x larger than 2013 capex of

Rp110bn). We expect Elnusa’s ROIC to normalize from 25% in 2014 to 19% by 2017.


Balance sheets

Elnusa is the least leveraged among the three O&G services companies as it has been focused on margin

improvement in the past two years, investing very little with capex to sales ratio of only 2-3% in 2012-13 versus

4-10% in 2009-11. Wintermar and Logindo have been investing more substantially given potential upside in

offshore market in addition to looking to benefi t from cabotage ruling for offshore vessels. Logindo’s net debt to

EBITDA of 3.4x at end of 2013 does limit company’s ability to expand aggressively, and we expect Logindo’s

capex to sales ratio to fall from 141-146% in 2012-13 to 84% in 2014 (due to growing revenue and slightly lower

capex). Logindo’s net debt to EBITDA to hit peak of 3.5x before falling gradually in the following years.

FIGURE 11. EBIT ROIC-WACC SPREAD IN 2014 AND 2017


FIGURE 12. LEVERAGE RATIOS IN 2014E


16%

5%

2%

9%

7%

5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


EBIT ROIC 2014E - WACC spread EBIT ROIC 2017E - WACC spread

0.2x

1.9x

3.5x

0.0x

0.7x

1.2x

0%

50%

100%

150%

200%

250%

300%

350%

400%


Net Debt to EBITDA Net Debt to Equity

Valuation: plenty of upside for all three O&G services

We initiate Elnusa, Wintermar, and Logindo with Buys and 26, 53, and 55% upsides, respectively. We use DCF for

all three companies with Wintermar to post positive free cash fl ow from 2016 onward while Elnusa and Logindo

from 2017 onward. Although Logindo presents the highest upside, our top pick is Wintermar given its higher

trading liquidity (USD180k per day versus Logindo’s USD66k) and Wintermar’s better balance sheet.

On relative valuation, Elnusa trades at 15.4x 2014 PE versus Wintermar 13.9x and Logindo 11.7x. Our target

prices imply 2014 PE of 21.3x for Elnusa, 18.9x for Wintermar, and 18.3x for Logindo.


FIGURE 13. REGIONAL COMPARISON

NamePrice Local

Market Cap

P/E P/BV ROE EV/EBITDADIVIDEND

YIELDCurrancy (USDmn) 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015

KEPPEL CORP LTD 10.73 15,601 12.3 11.4 1.8 1.7 15.1 15.1 11.5 10.5 4.0 4.2

SEMBCORP MARINE LTD 4.06 6,789 14.3 13.2 2.9 2.6 20.9 20.5 8.5 7.7 3.5 3.8

Singapore offshore - big cap weighted avg. 11,195 13.3 12.3 2.3 2.1 18.0 17.8 10.0 9.1 3.8 4.0

COSCO CORP SINGAPORE LTD 0.72 1,291 32.7 24.0 1.2 1.2 3.5 4.6 11.2 10.2 1.9 2.2

SINGAPORE TECH ENGINEERING 3.82 9,534 19.0 17.9 5.2 4.9 28.1 27.9 12.7 12.0 4.1 4.4

SIA ENGINEERING CO LTD 5.06 4,530 20.0 19.0 4.1 4.0 20.8 21.6 31.5 29.6 4.6 4.8

Chinese Shipbuilder weighted avg. 5,118 23.9 20.3 3.5 3.4 17.5 18.0 18.5 17.3 3.6 3.8

SAMSUNG HEAVY INDUSTRIES 27,200 6,155 37.8 10.7 1.0 1.0 2.8 9.5 15.9 8.2 1.7 1.8

HYUNDAI HEAVY INDUSTRIES 179,500 13,396 90.5 15.8 0.8 0.7 0.7 4.3 20.1 12.1 1.2 1.2

DAEWOO SHIPBUILDING & MARINE 25,500 4,802 13.4 10.0 0.9 0.9 7.4 9.7 14.7 12.1 1.3 1.3

HYUNDAI MIPO DOCKYARD 160,500 3,162 - 37.8 1.1 1.1 -3.7 3.3 - 13.1 0.6 0.6

Korean Shipbuilder weighted avg. 6,879 47.2 18.6 1.0 0.9 1.8 6.7 16.9 11.4 1.2 1.2

EZION HOLDINGS LTD 2.09 2,200 10.0 7.6 1.9 1.5 22.2 22.2 10.5 7.8 0.1 0.1

EZRA HOLDINGS LTD 1.11 866 18.1 11.1 0.8 0.7 4.5 6.4 14.3 10.5 0.3 0.5

JAYA HOLDINGS LTD 0.19 117 3.2 2.7 0.2 0.2 6.6 8.1 1.5 1.2 21.7 21.7

PACIFIC RADIANCE LTD 1.30 755 11.1 9.2 1.7 1.5 17.4 17.2 11.5 9.0 1.7 1.7

SWIBER HOLDINGS LTD 0.56 272 - 10.3 0.5 0.5 3.0 4.4 17.0 16.5 4.5 2.3

Singapore OSV owner (simple avg.) 842 10.6 8.2 1.0 0.9 10.7 11.7 11.0 9.0 5.7 5.2

ALAM MARITIM RESOURCES BHD 1.56 448 13.3 11.5 1.8 1.5 14.3 14.1 16.2 14.8 0.2 1.0

BUMI ARMADA BERHAD 3.55 3,237 19.9 16.9 2.2 1.9 12.0 12.1 11.6 9.9 1.1 1.8

MALAYSIA MARINE AND HEAVY EN 3.71 1,846 26.3 20.1 2.2 2.1 8.6 10.2 19.0 14.7 1.7 1.9

PERDANA PETROLEUM BHD 1.84 422 14.0 11.9 2.1 1.8 15.6 15.2 10.9 9.5 0.3 0.6

PERISAI PETROLEUM TEKNOLOGI 1.59 590 26.1 12.1 1.9 1.6 7.8 14.0 17.3 8.9 - -

SAPURAKENCANA PETROLEUM BHD 4.37 8,142 17.9 15.4 2.3 2.0 13.7 13.9 13.6 12.4 0.6 0.6

UMW OIL & GAS CORP BHD 4.20 2,824 33.1 21.3 3.7 3.3 10.0 12.3 19.3 12.6 0.2 0.3

Malaysia Offshore (simple avg.) 2,501 21.5 15.6 2.3 2.0 11.7 13.1 15.4 11.8 0.7 0.9

TK CORPORATION 15,700 396 28.6 26.5 0.9 0.9 3.3 3.4 18.3 17.4 - -

SUNG KWANG BEND CO LTD 19,650 553 10.0 8.5 1.2 1.0 12.6 13.2 7.0 6.2 0.8 0.8

Korean offshore equipments eighted avg. 474 19.3 17.5 1.0 1.0 8.0 8.3 12.7 11.8 0.4 0.4

WINTERMAR OFFSHORE MARINE 1,170 390 13.9 11.2 2.0 1.7 15.7 15.7 5.6 4.6 0.6 0.7

ELNUSA PT 650 395 16.6 13.1 1.9 1.8 12.4 13.1 6.7 5.9 2.6 3.3

LOGINDO SAMUDRAMAKMUR TBK PT 4,285 230 11.7 9.1 1.9 1.6 17.6 19.5 6.1 4.8 1.3 1.7

Indonesia offshore avg. 338 13.6 11.3 1.9 1.7 16.1 0.2 6.1 5.1 1.5 1.9

Source: TRIM Research

Elnusa, Wintermar and Logindo trade at higher PE than Singapore O&G services companies but we think this is

justifi ed given growth potential in Indonesia and particularly for Wintermar and Logindo given the cabotage rule

in Indonesia, which resulted in higher service rates in Indonesia. Elnusa, Wintermar, and Logindo trade at lower

PE than Malaysian O&G services companies despite more attractive outlook in Indonesia.


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2/1

4/2

014

4/1

4/2

014

6/1

4/2

014

Volume Price

Moving forward from effi ciency focus to growth focus

In the past three years, Elnusa has been more focused on improving

margins and it has worked well. Although revenue declined at –7% CAGR

in 2011-13, EBIT margin improved from -1% in 2011 to 7% in 2013 while

EPS rebounded from a loss of Rp15 per share to profi t of Rp25 per share.

We expect operating margin to continue improving to 10% in 2014 but

further upside from that level is unlikely. Going forward, Elnusa will need

to grow its revenue in order to maintain EPS growth and management

knows this. We expect revenue to grow by 4% this year followed by 15%

from 2015 onward. In order to help fuel this revenue growth, we expect

Elnusa to increase its capex to sales ratio from 3% in 2013 to 20% in

2014, before falling to 15% in 2015.

Potential synergy with Pertamina’s upstream

Elnusa is majority owned (41%) by Pertamina. Revenue from Pertamina

already contributes ~50% of Elnusa’s total revenue but Elnusa’s revenue

from Pertamina is only ~5% of Pertamina’s cost. There is signifi cant

upside if Pertamina group exercise more synergy within its subsidiaries,

as every 1% market share increase by Elnusa of Pertamina’s oil and gas

services implies a 10% increase in Elnusa’s revenue.

Corporate governance issues are behind the company

There was a corruption case in Elnusa in 2009-10 that implicated its

CFO of the time and resulted in a loss of Rp111bn for the company. The

BoD was replaced in 2011 and market’s perception of Elnusa’s corporate

governance has improved substantially since then. The company is now

net cash with a strong focus on oil and gas services.

Initiate with a Buy and TP Rp810 (27% upside)

We initiate Elnusa with a Buy and a 27% upside to SOTP-based TP of

Rp810, with DCF of current operations assuming a WACC of 9.7% with

23% EBIT ROIC in the last year of detailed forecast for DCF (2024) and

Rp50/share of sellable land owned by Elnusa. The stock currently trades

at 16.6x 2014 PE and 13.1x 2015 PE. Our target price implies 21.3x 2014

PE and 16.9x 2015 PE.

BUY Rp810

PT Pertamina (Persero) 41.1%

DP Pertamina 24.6%

Public 34.3%

EPS 14F 15F

Consensus (Rp) 43.4 54.5

TRIM VS Cons (%) (5.6) (14.9)

Share Price Rp630

Sector Oil and Gas Services

Price Target Rp810 (29%)

Elnusa is an oil and gas service company with a wide variety of services and mostly working on onshore oil and gas fi elds

Entering investment phase

COMPANIES DATA

COMPANY UPDATE

STOCK DATA

MAJOR SHAREHOLDERS:

CONSENSUS

STOCK PRICE

Year end Dec 2012 2013 2014F 2015F 2016F

Sales (RPbn) 4,777 4,112 4,285 5,072 5,836

Net Profi t (RPbn) 89 183 277 350 403

EPS (Rp) 12 25 38 48 55

EPS Growth (%) -183.4 105.1 51.7 26.2 15.0

DPS (Rp) 3 9 16 19 24

BVPS (Rp) 276 309 328 352 380

P/E (x) 51.6 25.2 16.6 13.1 11.4

Div Yield (%) 0.4 1.4 2.6 3.0 3.8

ELNUSACOMPANY FOCUS

Sebastian Tobing([email protected])

Reuters Code ELSA.JK

Bloomberg Code ELSA.IJ

Issued Shares (m) 7,298

Mkt Cap (Rpbn) 4,597

Average Daily T/O (m) 18.1

52-Wk range Rp650 / Rp230


TABLE 14: ESTIMATES AND KEY RATIOS

in Rpbn 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Integrated upstream migas services 2,144 2,978 2,552 2,680 3,216 3,698 4,216 4,722 5,194 5,714

Growth YoY -3% 39% -14% 5% 20% 15% 14% 12% 10% 10%

Upstream migas supporting services 435 375 249 261 300 346 394 441 485 534

Growth YoY 156% -14% -34% 5% 15% 15% 14% 12% 10% 10%

Downstream migas services 2,335 1,573 1,412 1,483 1,705 1,961 2,236 2,504 2,754 3,030

Growth YoY 18% -33% -10% 5% 15% 15% 14% 12% 10% 10%

Elimination (198) (149) (101) (139) (150) (169) (201) (220) (242) (269)

Growth YoY -4% -3% -2% -3% -3% -3% -3% -3% -3% -3%

Revenue 4,717 4,777 4,112 4,285 5,072 5,836 6,644 7,447 8,191 9,009

Gross profi t 285 551 647 721 889 1,022 1,165 1,305 1,435 1,579

EBITDA 310 527 482 660 820 951 1,087 1,223 1,353 1,490

EBIT (22) 252 293 416 527 606 692 774 852 937

Pretax profi t (26) 211 337 377 476 547 618 694 767 850

Taxes (4) (75) (95) (94) (119) (137) (154) (173) (192) (213)

Minority interest (13) (8) (5) (5) (7) (8) (9) (10) (11) (12)

Net profi t (43) 128 238 277 350 403 455 510 565 626

Core profi t (recurring income) (107) 89 183 277 350 403 455 510 565 626

Margins

EBITDA margin 7% 11% 12% 15% 16% 16% 16% 16% 17% 17%

EBIT margin 0% 5% 7% 10% 10% 10% 10% 10% 10% 10%

Pretax profi t margin -1% 4% 8% 9% 9% 9% 9% 9% 9% 9%

Net profi t margin -1% 3% 6% 6% 7% 7% 7% 7% 7% 7%

Core profi t margin -2% 2% 4% 6% 7% 7% 7% 7% 7% 7%

Key ratios

EBIT ROIC (after tax) -2% 13% 17% 24% 22% 20% 19% 19% 19% 19%

Net debt to EBITDA 1.1 0.1 (1.2) 0.2 0.5 0.7 0.7 0.7 0.7 0.6

EBIT interest coverage (0.2) 2.9 5.4 6.5 8.3 8.9 8.7 9.0 9.5 10.4


Building Elnusa’s estimates are more diffi cult than Wintermar and Logindo because Elnusa has a wider variety of

businesses, making it more diffi cult to get a good grasp of capacity and therefore potential growth. Business

strategy is also changing. From 2011-13, company was more focused on improving effi ciency; hence, revenue of

-7% CAGR while EBITDA grew by 25% CAGR and bottom line swung from a loss to a profi t in that period. We still

expect margin improve in 2014, but revenue to start growing by 5% YoY and to accelerate to 15% YoY in 2015

and 2016 before the growth rate starts slowing down.

Although we give management benefi t of the doubt that they can grow the revenue (after focusing on effi ciency

in the past three years), we believe we are conservative enough in our estimates. Our revenue and EPS CAGR

estimates for 2014-17 of 15 and 14% are lower than company’s guidance of revenue and EPS CAGR of 22% and

16%, respectively. As a result, our 2017 revenue is 17% below company guidance and EPS 5% below company

guidance. We expect EBIT ROIC (after tax) to fall from peak of 24% in 2014 to 22% in 2015 and 20% in 2016.


Valuation: Buy with TP 810

We initiate Elnusa (ELSA) with a Buy rating on the back of: 1) Stable growth outlook expecting Elnusa to gain

more business from Pertamina, its captive customer, and 2) Solid balance sheet to support this growth (least

leveraged among the three O&G service companies we cover). We use SOTP (sum of the parts) that combine

DCF-based valuation method for Elnusa’s operations, assuming a WACC of 9.7%, and sellable land valued at

Rp362bn or Rp50/share (NJOP or taxable value as measured by government, the market value is more likely to

be higher).

FIGURE 15. WACC ASSUMPTION

WACC components Figure Comment

Risk free rate 7.5% Indonesia's long-term 10 yr bond yield assumption

Market premium 5.0%

Beta 0.78 5-yr weekly Beta

Debt rate 12.8% Added 5% to USD borrowing cost

Debt proportion 30.0%

Tax rate 25.0%

Equity cost of capital 9.8%

Debt cost of capital 9.6%

WACC 9.7%

LT growth rate 1.5% Global infl ation assumption

FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F

EBIT (1- tax) 395 455 519 581 639 703 773 850 935 1,029

Depreciation and Amortisation 292 345 396 448 501 553 604 652 706 765

Changes in non-cash Working Capital

(8) (17) 16 (27) (79) (13) (23) (28) (46) (52)

Capex (761) (817) (797) (819) (819) (811) (793) (763) (839) (923)

FCFF (81) (35) 133 183 242 431 560 711 756 818

Discounted FCFF (74) (29) 101 127 152 247 293 339 329 324

Total discounted FCFF 5,700

Net cash (debt) (131)

NAV excluding others 5,569

Others NAV (land) 362

NAV including others 5,931

# of shares 7,299

NAV / share 813

Target price after rounding 810



Year end 31 Dec 2012 2013 2014F 2015F 2016F

Revenue 4,777 4,112 4,285 5,072 5,836

Revenue Growth (%) 1.3 -13.9 4.2 18.4 15.1

Gross Profi t 551.1 646.7 721.2 888.7 1,022.0

Opr. Profi t 252.1 293.1 415.9 527.3 606.1

EBITDA 482 660 820 951 1,087

EBITDA Growth (%) -8.6 36.9 24.3 16.0 14.4

Net Int Inc/(Exp) 11 20 25 12 9

Gain/(loss) Forex 13 62 - - -

Other Inc/(Exp) 44 4 - - -

Pre-tax Profi t 211 337 377 476 547

Tax 75 95 94.2 119 136.8

Minority Int. 8 5 5.3 7 7.7

Extra. Items - - - - -

Reported Net Profi t 128 238 277 350 403

Core Net Profi t 89 183 277 350 403

growth (%) NM 105.1 51.7 26.2 15.0

Dividend per share 3 9 16.3 19 24.0

growth (%) 178.5 220.0 86.1 16.5 26.2

Dividend payout ratio NM 50 50 50 50

Core Net Profi t 89 183 277 350 403

Depr / Amort 275 189 244 292 345

Chg in Working Cap (54) 105 (232) (8) (17)

Others 227 277 0 0 0

CF's from oprs 537 754 289 634 730

Capex (104) (110) (857) (761) (817)

Others 17 151 0 0 0

CF's from investing (87) 41 (857) (761) (817)

Net change in debt (67) (201) 0 100 100

Others (168) (324) (119) (139) (175)

CF's from fi nancing (235) (525) (119) (39) (75)

Net cash fl ow 215 270 (687) (165) (162)

Cash at BoY 689 928 1,320 633 468

Cash at EoY 904 1,198 633 468 306

Free Cashfl ow 279 395 (533) (81) (35)

6-Feb-08 IPO @ Rp400

Cash and equivalents 928 1,320 633 468 306

Other curr asset 1,382 1,173 1,425 1,621 1,859

Net fi xed asset 1,257 1,049 1,662 2,131 2,603

Other asset 727 830 835 833 832

Total asset 4,295 4,371 4,555 5,053 5,601

ST debt 434 269 269 269 269

Other curr liab 1,253 1,292 1,017 1,187 1,416

LT debt 531 496 496 596 696

Other LT Liab 34 30 32 34 36

Minority interest 25 27 31 40 46

Total Liabilities 2,252 2,086 1,813 2,085 2,416

Shareholders Equity 2,017 2,258 2,397 2,572 2,773

Net (debt) / cash -37 555 -131 -396 -658

Total cap employed 1,387 930 2,070 2,565 3,047

Net Working capital 129 -119 408 435 444

Debt 965 764 764 864 964

INCOME STATEMENT (RPBN) BALANCE SHEET (RPBN)

CASH FLOW (RPBN) KEY RATIO ANALYSIS

Year end 31 Dec 2012 2013 2014F 2015F 2016F

Year end 31 Dec 2012 2013 2014F 2015F 2016F

CAPITAL HISTORY

Date

Profi tability

Gross Margin (%) 11.5 15.7 16.8 17.5 17.5

Opr Margin (%) 5.3 7.1 9.7 10.4 10.4

EBITDA Margin (%) 11.0 11.7 15.4 16.2 16.3

Core Net Margin (%) 2.7 5.8 6.5 6.9 6.9

ROAE (%) 6.3 10.5 11.6 13.6 14.5

ROAA (%) 3.0 5.4 6.1 6.9 7.2

Stability

Current ratio (x) 1.4 1.6 1.6 1.4 1.3

Net Debt to Equity (x) 0.0 (0.2) 0.1 0.2 0.2

Net Debt to EBITDA (x) 0.1 (1.2) 0.2 0.5 0.7

Interest Coverage (x) 2.9 5.4 6.5 8.3 8.9

Effi ciency

A/P (days) 32 32 32 32 32

A/R (days) 85 85 83 83 86

Inventory (days) 7 9 9 9 8

Year end 31 Dec 2012 2013 2014F 2015F 2016F

Sales 1,046 928 947 1,191 918

Gross Profi t 136 157 123 231 148

Opr. Profi t 54 101 53 85 101

Net profi t 35 49 35 120 54

Gross Margins (%) 13% 17% 13% 19% 16%

Opr Margins (%) 5% 11% 6% 7% 11%

Net Margins (%) 3% 5% 4% 10% 6%

INTERIM RESULTS

Year end 31 Dec 1Q13 2Q13 3Q13 4Q13 1Q14


-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

-

100

200

300

400

500

600

700

6/1

4/2

013

8/1

4/2

013

10/1

4/2

013

12/1

4/2

013

2/1

4/2

014

4/1

4/2

014

6/1

4/2

014

Volume Price

Strong growth outlook with 26% EPS CAGR

We expect Wintermar’s revenue to grow at 27% CAGR in 2014-17 on

the back of a 12% CAGR in the number of mid and high-tier vessels and

higher utilization rate from 48% in 2014 to 60% in 2017. We already

assume some benefi t of the doubt that upstream oil and gas regulator will

be more active from 2015 onward after new government starts its work

this October. We expect Wintermar to post stable margin that leads to

26% EPS CAGR, only slightly lower than Logindo’s 26% EPS CAGR and

higher than ELSA’s 18% CAGR.

Increasing the number of mid and high-tier vessels

Wintermar’s mid and high-tier vessels have increased from 19 vessels in

2010 to 43 vessels in 2013 while the number of its low-tier vessels have

declined from 40 vessels in 2010 to 28 vessels in 2013. We expect the

company to continue investing in mid and high-tier vessels while selling

old low-tier vessels (expect 20 low-tier vessels and 48 mid and high-

tier vessels by end of 2014) to improve margin and ROIC. We believe

Wintermar’s EBIT ROIC will improve gradually from 16% in 2014 to 17%

in 2017.

Balance sheet can still support growth

Wintermar is more leveraged than Elnusa but less than Logindo, with net

debt to EBITDA of 1.9x that we expect to peak to 2.3x in 2015 before

gradually declining. It is more diffi cult for O&G (Oil and Gas) service

companies to acquire longer term debt this year as contracts tend to have

shorten in length (due to corruption issues at upstream regulator) but the

situation may improve as new government (election is underway) is likely

to aim oil and gas production by trying to attract more investment in this

sector.

Valuation: DCF-based TP of 1600 (36% upside)

We use DCF valuation method to arrive at a target price of Rp1600,

assuming a WACC of 10.6% and an EBIT ROIC of 18% at the end of

detailed DCF year (2024). Wintermar currently trades at 13.9x 2014 PE

and 11.2x 2015PE. Our TP implies 18.9x 2014PE and 15.3x 2015PE versus

EPS CAGR (2014-17) of 26%.

BUY Rp1,600

PT Wintermarjaya Lestari 53.2%

Others 17.2%

Public 29.6%

EPS 14F 15F

Consensus (Rp) 100 113

TRIM VS Cons (%) (15.3) (7.3)

Share Price Rp1,175


Price Target Rp1,600 (36%)

Wintermar Offshore is an oil and gas service company that focuses on offshore oil and gas fi elds.

Solid growth outlook

COMPANIES DATA

COMPANY UPDATE

STOCK DATA

MAJOR SHAREHOLDERS:

CONSENSUS

STOCK PRICE

Year end Dec 2012 2013 2014F 2015F 2016F

Sales (USDmn) 124 187 228 288 364

Net Profi t (USDmn) 20 27 33 39 50

EPS (Rp) 64 79 85 105 136

EPS Growth (%) - 16.4 9.0 23.7 29.5

DPS (Rp) 5 5 7 8 9

BVPS (Rp) 421 521 598 698 826

P/E (x) 18.2 14.9 13.9 11.2 8.7

Div Yield (%) 0.4 0.4 0.6 0.7 0.8

Reuters Code WINS.JK

Bloomberg Code WINS.IJ

Issued Shares (m) 3,997



52-Wk range Rp1,245 / Rp482

WINTERMAR OFFSHORE MARINECOMPANY FOCUS




in USDmn 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Low-tier vessels 38 32 28 20 16 12 8 8 8 8

Mid-tier vessels 26 27 36 39 43 48 52 56 61 65

High-tier vessels 3 5 7 9 11 13 15 17 19 21

Total vessels 67 64 71 68 70 73 75 81 88 94

Low-tier daily rate (USD) 1,500 1,500 1,500 1,500 1,523 1,545 1,569 1,592 1,616 1,640

Mid-tier daily rate (USD) 9,000 9,000 9,000 9,000 9,135 9,272 9,411 9,552 9,696 9,841

High-tier daily rate (USD) 32,500 32,500 32,500 32,500 32,988 33,482 33,985 34,494 35,012 35,537

Average daily rate (USD) 5,799 7,086 8,359 9,904 11,134 12,327 13,489 13,983 14,445 14,884

Low-tier potential revenue 21 18 15 11 9 7 5 5 5 5

Mid-tier potential revenue 85 89 118 128 144 161 179 196 215 233

High-tier potential revenue 36 59 83 107 132 159 186 214 243 272

Total potential revenue 142 166 217 246 286 327 369 415 462 511

Utilization rate (own vessels/potential) 38% 39% 46% 48% 51% 55% 60% 65% 65% 65%

Own vessels revenue 54 65 99 118 146 180 222 270 300 332

Chartered vessels revenue 52 46 78 99 132 174 230 300 347 397

Other marine services revenue 9 13 10 10 10 10 10 10 10 10

Revenue 116 124 187 228 288 364 462 580 658 740

Gross profi t 29 35 58 71 88 111 138 171 189 206

EBITDA 32 40 66 77 96 120 146 177 196 214

EBIT 21 27 47 56 70 89 109 135 148 160

Pretax profi t 22 26 40 49 57 73 90 112 125 137

Taxes (2) (2) (3) (4) (4) (5) (7) (8) (9) (10)

Minority interest (4) (4) (10) (12) (14) (18) (22) (27) (31) (34)

Net profi t 17 20 27 33 39 50 61 76 85 93

Core profi t (recurring income) 16 21 25 30 37 48 59 76 85 93

Margins

EBITDA margin 28% 33% 35% 34% 33% 33% 32% 31% 30% 29%

EBIT margin 18% 21% 25% 25% 24% 24% 24% 23% 22% 22%

Pretax profi t margin 19% 21% 21% 21% 20% 20% 19% 19% 19% 19%

Net profi t margin 14% 16% 14% 15% 13% 14% 13% 13% 13% 13%

Core profi t margin 13% 17% 13% 13% 13% 13% 13% 13% 13% 13%

Key ratios

EBIT ROIC (after tax) 12% 11% 16% 16% 16% 16% 17% 19% 18% 18%

Net debt to EBITDA 2.0 2.0 1.6 1.9 2.3 2.2 2.1 1.9 1.7 1.6

EBIT interest coverage 5.5 4.7 5.6 5.1 4.8 5.0 5.1 5.9 6.4 7.0






Market premium 5.0%

Beta 76.0% 2-yr weekly Beta



Tax rate 0.0%



WACC 10.6%


in USD mn FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F

EBIT (1- tax) 65 84 103 127 139 150 162 174 186 198



(8) (10) (10) (14) (8) (8) (9) (9) (9) (9)

Capex (119) (121) (123) (124) (126) (128) (130) (132) (134) (136)

FCFF (35) (16) 7 31 53 69 84 100 115 131

Discounted FCFF (32) (13) 5 21 32 38 41 45 47 48

Total discounted FCFF 705


NAV excluding others 573

Others NAV (land) -

NAV including others 573

# of shares 4.0

NAV / share (Rp) 1,620

Target price after rounding (Rp) 1,600



Year end 31 Dec 2012 2013 2014F 2015F 2016F

Revenue 124 187 228 288 364

Revenue Growth (%) 7.1 51.0 21.5 26.4 26.6

Gross Profi t 35.1 58.5 70.8 87.8 111.5

Opr. Profi t 26.6 47.4 56.4 69.5 88.9

EBITDA 40 66 77 96 120

EBITDA Growth (%) 26.5 63.5 16.4 24.1 26.1

Net Int Inc/(Exp) 1 0 0 0 0

Gain/(loss) Forex (0) 0 - - -

Other Inc/(Exp) 2 (3) - - -

Pre-tax Profi t 26 40 49 57 73

Tax (2) (3) (3.6) (4) (5.3)

Minority Int. 4 10 12.0 14 17.9


Reported Net Profi t 20 27 33.3 39 49.7

Core Net Profi t 21 25 30.0 37 48.0

growth (%) 37.4 18.0 18.7 23.7 29.5

Dividend per share 5 5 7 8 9

growth (%) - -1 32 23 16

Dividend payout ratio 11.2 8.7 8.7 8.7 8.7

Core Net Profi t 21 25 30 37 48

Depr / Amort 12 16 21 26 31

Chg in Working Cap (4) (11) (2) (8) (10)

Others (0) 18 3 2 2

CF's from oprs 29 49 52 57 71

Capex (43) (70) (93) (119) (121)

Others 2 (2) 0 0 0

CF's from investing (41) (72) (93) (119) (121)

Net change in debt 23 35 50 50 50

Others (3) (3) (2) (3) (3)

CF's from fi nancing 20 32 48 47 47

Net cash fl ow 8 8 7 (15) (3)

Cash at BoY 10 17 25 33 18

Cash at EoY 17 26 33 18 15

Free Cashfl ow (9) (18) (21) (35) (16)

6-Feb-08 IPO @ Rp400

Cash and equivalents 17 25 33 18 15

Other curr asset 41 60 73 93 118

Net fi xed asset 248 301 373 466 556

Other asset 33 36 36 43 54

Total asset 339 422 515 620 742

ST debt 18 26 26 26 26

Other curr liab 47 68 72 83 96

LT debt 80 107 157 207 257

Other LT Liab 35 29 29 29 28


Total Liabilities 180 230 284 345 407

Shareholders Equity 154 181 211 247 292

Net (debt) / cash -80 -107 -150 -215 -268

Total cap employed 242 293 374 476 578

Net Working capital -6 -8 1 10 23

Debt 98 133 183 233 283

INCOME STATEMENT (USD) BALANCE SHEET (USD)

CASH FLOW (USD) KEY RATIO ANALYSIS

Year end 31 Dec 2012 2013 2014F 2015F 2016F

Year end 31 Dec 2012 2013 2014F 2015F 2016F

CAPITAL HISTORY

Date

Profi tability

Gross Margin (%) 28.2 31.2 31.1 30.5 30.6

Opr Margin (%) 21.5 25.3 24.8 24.2 24.4

EBITDA Margin (%) 32.6 35.3 33.8 33.2 33.0

Core Net Margin (%) 16.3 14.4 14.6 13.5 13.6

ROAE (%) 13.1 14.9 15.7 15.7 17.0

ROAA (%) 6.0 6.4 6.5 6.2 6.7

Stability

Current ratio (x) 1.2 1.3 1.5 1.3 1.4

Net Debt to Equity (x) 0.5 0.6 0.7 0.9 0.9

Net Debt to EBITDA (x) 2.0 1.6 1.9 2.3 2.2


Effi ciency

A/P (days) 83 86 86 86 86

A/R (days) 106 111 105 107 108


Year end 31 Dec 2012 2013 2014F 2015F 2016F

Sales 39 43 49 56 46

Gross Profi t 11 14 16 17 17

Opr. Profi t 8 11 13 14 14

Net profi t 6 6 7 9 8

Gross Margins (%) 28.8 31.6 32.7 30.4 38.0

Opr Margins (%) 21.2 26.0 27.2 25.2 30.5

Net Margins (%) 14.8 12.9 14.3 15.6 16.7

INTERIM RESULTS



-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

12/1

0/2

013

2/1

0/2

014

4/1

0/2

014

6/1

0/2

014

Volume Price

Strongest growth outlook among O&G services

We expect Logindo to post 32% EPS CAGR in 2014-17 on the back of a

24% CAGR in revenue and operating margin improvement from 39% to

41% in the same period. Revenue growth is driven by 18% CAGR in the

number of mid and high-tier vessels to 31 (out of total 75) vessels in

2017E and higher utilization rate of vessels from 60% in 2014 to 65% in

2017.

Focused on offshore business, looking to trade up

We expect Logindo to remain focused on offshore oil and gas service

business for the foreseeable future, but management is likely to look

for replacing their smaller vessels with larger ones to improve margins.

At some point in the future, the company may go further into investing

in drilling equipments (higher capex but potentially even higher margin

business), but that will be years from now. We expect Logindo’s gross

margin to rise from 51% in 2014 to 53% by 2016, similar to Wintermar’s

margin from own vessels.

Most leveraged of the three O&G service companies

Logindo is most leveraged with net debt to EBITDA at 3.5x at end of

2014E, which we also believe to be the peak leverage and to fall gradually

to 2.8x by 2017E. We also expect capex to revenue ratio to fall from

146/141% in 2012/13 to 84/67/54% in 2014/15/16.

Valuation: DCF-based Rp6700 target price (55% upside)

We initiate Logindo (LEAD) with a Buy and a DCF-based Rp6700 target

price, assuming a 10.3% WACC and an EBIT ROIC of 19% in the fi nal year

of our detailed DCF forecast (in 2024). Logindo currently trades at 11.7x

2014PE and 9.1x 2015PE. Our target price implies 18.3x 2014PE and 14.2x

2015PE versus 28% EPS CAGR (2014-17).

BUY Rp6,700

Alstonia Offshore Pte.Ltd. 35.0%

Logam family 36.0%

Public 29.0%

EPS 14F 15F

Consensus (Rp) 383 485

TRIM VS Cons (%) (4.4) (2.8)

Share Price Rp4,275


Price Target Rp6,700 (57%)

Logindo Samudra Makmur is an oil and gas service company that focuses on offshore oil and gas fi elds

Strong growth ahead

COMPANIES DATA

COMPANY UPDATE

STOCK DATA

MAJOR SHAREHOLDERS:

CONSENSUS

STOCK PRICE

Year end Dec 2012 2013 2014F 2015F 2016F

Sales (USDmn) 34 59 79 101 128

Net Profi t (USDmn) 8 16 21 27 36

EPS (Rp) 143 288 366 472 636

EPS Growth (%) - 90.6 29.1 29.0 34.8

DPS (Rp) 32 31 57 74 95

BVPS (Rp) 858 1,998 2,262 2,646 3,161

P/E (x) 29.8 14.8 11.7 9.1 6.7

Div Yield (%) 0.7 0.7 1.3 1.7 2.2

Reuters Code LEAD.JK

Bloomberg Code LEAD.IJ

Issued Shares (m) 644



52-Wk range Rp4,500 / Rp2,550

LOGINDO SAMUDRAMAKMUR COMPANY FOCUS




in USDmn 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Low-tier vessels 44 44 44 44 44 44 44 44 44

Mid-tier vessels 5 6 7 8 9 10 11 12 13

High-tier vessels 6 9 12 15 18 21 24 27 30

Total vessels 55 59 63 67 71 75 79 83 87

Low-tier daily rate (USD) 700 700 700 711 721 732 743 754 765

Mid-tier daily rate (USD) 4,000 4,000 4,000 4,060 4,121 4,183 4,245 4,309 4,374

High-tier daily rate (USD) 27,000 27,000 27,000 27,405 27,816 28,233 28,657 29,087 29,523

Average daily rate (USD) 3,869 5,047 6,076 7,087 8,021 8,892 9,711 10,485 11,221

Low-tier potential revenue 11 11 11 11 11 12 12 12 12

Mid-tier potential revenue 7 9 10 12 13 15 17 19 20

High-tier potential revenue 58 87 117 148 180 213 248 283 319

Total potential revenue 77 92 123 154 188 223 258 295 332

Utilization rate (own vessels/potential) 41% 59% 60% 62% 65% 65% 65% 65% 65%

Own vessels revenue 31 54 74 96 122 145 168 192 216

Other marine services revenue 3 5 5 5 5 6 6 6 6

Revenue 34 59 79 101 128 150 173 197 222

Gross profi t 17 30 40 52 67 80 92 105 119

EBITDA 17 32 42 54 69 81 94 107 120

EBIT 12 24 31 40 52 61 71 82 92

Pretax profi t 9 18 23 29 39 47 57 67 77

Taxes (1) (1) (1) (2) (2) (3) (3) (4) (4)

Minority interest (1) (0) (1) (1) (1) (1) (1) (1) (1)

Net profi t 9 16 21 27 37 45 54 64 73

Core profi t (recurring income) 8 16 21 27 36 44 53 63 73

Margins

EBITDA margin 55% 55% 54% 54% 54% 54% 54% 54% 54%

EBIT margin 35% 40% 39% 40% 41% 41% 41% 41% 41%

Pretax profi t margin 28% 30% 29% 29% 30% 31% 33% 34% 35%

Net profi t margin 26% 28% 27% 27% 29% 30% 31% 32% 33%

Core profi t margin 25% 27% 26% 27% 28% 29% 31% 32% 33%

Key ratios

EBITDA margin 10% 13% 12% 13% 15% 15% 15% 16% 16%

Net debt to EBITDA 5.3 3.4 3.5 3.4 3.0 2.8 2.5 2.2 1.8

EBIT interest coverage 3.9 3.7 3.6 3.5 3.7 4.1 4.8 5.5 6.1






Market premium 5.0%

Beta 77.0% Average Beta of Elnusa and Wintermar



Tax rate 0.0%



WACC 10.3%


in USD mn FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F

EBIT (1- tax) 40 52 61 71 82 92 103 114 125 137



(4) (5) (4) (4) (4) (4) (4) (4) (5) (5)

Capex (68) (69) (70) (71) (72) (73) (74) (75) (76) (77)

FCFF (17) (4) 8 19 31 43 55 68 81 95

Discounted FCFF (15) (3) 6 13 19 24 28 31 33 35

Total discounted FCFF 534


NAV excluding others 384

Others NAV (land) -

NAV including others 384

# of shares 644

NAV / share (Rp) 6,739

Target price after rounding (Rp) 6,700



Year end 31 Dec 2012 2013 2014F 2015F 2016F

Revenue 34 59 79 101 128

Revenue Growth (%) - 73.1 33.5 28.3 26.3

Gross Profi t 16.6 30.1 40.4 52.5 67.4

Opr. Profi t 12.1 23.5 30.8 40.2 52.3

EBITDA 17 32 42 54 69

EBITDA Growth (%) - 89.4 31.0 28.3 27.1

Net Int Inc/(Exp) (3) (6) (9) (11) (14)

Gain/(loss) Forex 0 (0) - - -

Other Inc/(Exp) 0 0 0.4 0 0.4

Pre-tax Profi t 9 18 23 29 39

Tax (1) (1) (1.4) (2) (2.3)

Minority Int. - - - - -


Reported Net Profi t 9 16 21.2 27 36.6

Core Net Profi t 8 16 20.8 27 36.3

growth (%) - 90.55 29.08 29.05 34.75

Dividend per share 32 31 57 74 95

growth (%) - -1.4 82.5 28.8 28.6

Dividend payout ratio - 19.8 19.8 19.8 19.8

Core Net Profi t 8 16 21 27 36

Depr / Amort 5 9 12 14 17

Chg in Working Cap (5) (5) (3) (4) (5)

Others 6 5 0 0 0

CF's from oprs 15 25 30 38 49

Capex (50) (83) (67) (68) (69)

Others (1) (0) 0 0 0

CF's from investing (51) (84) (67) (68) (69)

Net change in debt 39 40 50 50 30

Others (3) 25 (3) (4) (5)

CF's from fi nancing 35 65 47 46 25

Net cash fl ow (0) 5 10 16 5

Cash at BoY 3 3 8 18 34

Cash at EoY 3 8 18 34 39

Free Cashfl ow (37) (56) (27) (17) (4)

11-Dec-13 IPO @ Rp2,800

Cash and equivalents 3 8 18 34 39

Other curr asset 9 16 21 26 33

Net fi xed asset 135 209 264 317 369

Other asset 2 2 2 2 2

Total asset 148 236 305 379 443

ST debt 17 16 16 16 16

Other curr liab 20 28 28 29 31

LT debt 60 80 130 180 210

Other LT Liab 0 0 2 3 5


Total Liabilities 98 124 176 229 263

Shareholders Equity 51 112 129 151 180

Net (debt) / cash -75 -88 -128 -162 -187

Total cap employed 124 198 256 314 370

Net Working capital -11 -11 -8 -3 1

Debt 91 109 149 183 208

INCOME STATEMENT (USD) BALANCE SHEET (USD)

CASH FLOW (RPBN) KEY RATIO ANALYSIS

Year end 31 Dec 2012 2013 2014F 2015F 2016F

Year end 31 Dec 2012 2013 2014F 2015F 2016F

CAPITAL HISTORY

Date

Profi tability

Gross Margin (%) 48.7 51.0 51.2 51.9 52.8

Opr Margin (%) 35.4 39.9 39.1 39.7 40.9

EBITDA Margin (%) 50.1 54.9 53.8 53.8 54.2

Core Net Margin (%) 26.0 27.9 26.9 27.0 28.7

ROAE (%) 17.5 20.2 17.6 19.5 22.1

ROAA (%) 6.0 8.6 7.8 8.0 8.9

Stability

Current ratio (x) 0.3 0.6 0.9 1.3 1.5

Net Debt to Equity (x) 1.8 1.0 1.2 1.2 1.2

Net Debt to EBITDA (x) 5.3 3.4 3.5 3.4 3.0


Effi ciency

A/P (days) 14 22 18 18 20

A/R (days) 77 83 80 80 81


Year end 31 Dec 2012 2013 2014F 2015F 2016F

Sales 18

Gross Profi t 9

Opr. Profi t 8

Net profi t 6

Gross Margins (%) 52.2

Opr Margins (%) 42.8

Net Margins (%) 31.3

INTERIM RESULTS



DISCLAIMER:

This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affi liated companies and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has been produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities. While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication, Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided solely for the information of clients of Trimegah Securities who are expected to make their own investment decisions without reliance on this report. Neither Trimegah Securities nor any offi cer or employee of Trimegah Securities accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted upon or used the information herein contained, or the research or analysis on which it is based, before publication. Trimegah Securities may in future participate in an offering of the company’s equity securities.

PT Trimegah Securities Tbk

Gedung Artha Graha 18th Floor

Jl. Jend. Sudirman Kav. 52-53

Jakarta 12190, Indonesia

t. +62-21 2924 9088

f. +62-21 2924 9150

www.trimegah.com

june 24, 2014 sector focus - pt trimegah sekuritas ... · pt trimegah securities tbk - sector focus...

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