Excerpts from analyst's report
NRA Capital analyst: Jacky Lee
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Key takeaways from results briefing:
» Sale of goods segment for JM contributed the most to JM FY03/15 net income, due to the revenue increase and better margins. JM management intends to focus on this segment to generate revenue as competition has tightened the margins for the Services and Airtime segments. However, management cautions that the margin improvements for the sale of goods segment are due to product mix and are not guaranteed to be repeated in subsequent time periods.
» Singapore revenue remains the largest contributor with 4% yoy declined in FY03/15. Chinese and Brazilian revenue increased 29% yoy from S$17.0m to S$21.9m as Chinese demand is anticipated to remain healthy due to the yards there having state support. However, Brazilian customers are facing problems because of the falling oil price affecting demand for offshore vessels, which will likely persist into 2015 and affect the FY03/16 Brazil segment revenue for JM. In other countries, revenue increased 42% yoy to S$12.2m, largely on the back of higher order volume from Vietnam and Europe.
» Falling oil prices have affected the demand for new vessel orders, which is likely to affect its order pipeline. However, the net impact on FY03/16 revenues is likely to be limited given the demand from China and Vietnam remain strong and Indonesia demand is slowly recovering.
» JM products are installed at the advanced stage of construction, lowering the capital commitments for JM for projects undertaken and reducing inventory and receivable risk. The market environment should be monitored over 2015 to determine the order trajectory for JM products and services, though government initiatives and fleet modernization programmes are likely to help moderate the impact of falling oil prices on overall equipment demand for new vessels.
» Foreign exchange gains for JM were due to billings for some geographies being registered in USD. The uncertainty of the USD rate hike timing may lead to the USD moderating its appreciation against the SGD until the rate hike is finalized.
» The board for JM has committed to distributing not less than 25% of the groups audited consolidated net profits, barring unforeseen circumstances. Dividend payout for FY03/15 is 40.9% of net income, with total FY03/15 dividends increasing from 1 cent to 1.5 cents.
Our view:
At 24 cents, JM trades at 7.1x current FY03/15 PER, trading below its average PER of 8.5x since its listing in 2009. . We view its valuation is attractive, given its zero debt with S$0.21 net cash per share and a 5.8% current dividend yield. The main issue is liquidity – the stock is hardly traded with a free float of just 19%.
The major risk for JM comes from a potential cancellation in orders for 2015/2016, should government initiatives to support shipbuilding and ship modernization in China and Indonesia falter.
