CMP = Rs 205 (as of April 18)
Price target: Rs 300
Result highlights
- South East Asia Marine Engineering & Construction (SEAMEC) has reported a 107.9% growth in its revenues to Rs56.1 crore for the first quarter ended March 2007.
- The growth was higher than expectation due to the two-month extension of the contract from Oil & Natural Gas Corporation (ONGC; with relatively high day rates) for one of its vessels.
- The operating profit margin (OPM) slipped from 61.3% to 48.2% primarily due to the incremental cost related to SEAMEC Princess (the fourth vessel that is undergoing modification and that didn't contribute to revenues in Q1).
- This coupled with the general wage inflation resulted in a four-fold jump in the staff cost to Rs20.2 crore as compared with Rs5.2 crore in Q1CY2006. Consequently, the earnings grew at a relatively lower rate of 61.2% to Rs24.4 crore.
- In terms of the outlook on charter rates, the company expects the day rates to remain firm on the back of the favourable demand environment.
- Even after the anticipated addition of multi-support vessels (MSVs) by some of the Indian companies (like Great Offshore) there would be a shortage of MSVs in the coming years due to the huge requirement to set up the required infrastructure to transport hydrocarbons produced from the large offshore fields discovered in India over the past few years.
- To factor in the robust performance of Q1 and the higher than expected dry docking expenses indicated by the management, we are revising downwards the CY2007 earnings estimates by 4.9% but maintaining the CY2008 earnings estimates.
- At the current market price the stock trades at 8.8x CY2007 and 5.8x CY2008 estimated earnings.
- I maintain our Buy call on the stock with a price target of Rs 300.
