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2024
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• Mermaid Maritime's stock had done well with a 100+% rise, from 9.9 cents to 23 cents, its peak following an initiation report by Lim & Tan Securities. • Then aggressive profit-taking set in, sending it down a whopping 50%. The gloom deepened when Mermaid released its 2QFY24 (ended June 2024) results, with profit coming in at only US$2.9 million (-12.7% y-o-y). •What was stark and dark was the fall in profitability despite a 155% jump in revenue. The decommissioning contracts which accounted for a big jump in revenue was barely making money. This has moderated investors' expectations of the record orderbook, which had been boosted by decommissioning projects.  • In decommissioning, Mermaid (market cap: S$234 million) engages in, among otherthings, the removal and disposal of platforms and pipelines, etc ensuring that the site is left in an environmentally acceptable condition. Offshore decommissioning is at an infancy stage across the world with Asia-Pacific forecasted to be the fastest-growing region. Don't expect Mermaid's decommissioning work to deliver great margins. CGS International, in its initiation report today, forecasts 8.2% gross margin only in FY2025 for the T&I and Decommissioning segment where the decommissioning work falls under. • Following Lim & Tan's initiation report with a bullish target price of 30 cents, CGI's report sets a target that is more modest at 20 cents. Read excerpts below... |
Excerpts from CGS International report
Analysts: Meghana KANDE & LIM Siew Khee
Mermaid Maritime (MMT SP)
| ■ MMT’s orderbook (OB) of US$976m, as of 2Q24, is at an 11-year high due to new decommissioning orders and renewal of IRM contracts at higher values. ■ Limited newbuilds over the past decade have kept global vessel supply tight, driving MMT’s fleet utilisation to over 80% in 1H24, up from 50% in 2021. ■ We expect MMT to achieve net profit growth of 22%/70% in FY24F/25F from execution of larger-scale decom. projects and high-margin cable-lay orders. ■ The stock trades at a 33% discount to global peers’ 2025F P/E. We initiate on MMT with an Add call and TP of S$0.20, based on 11x 2025F P/E. |
Mermaid's subsea IRM (inspection, repair and maintenance business segment is a core contributor while decommissioning is a strongly emerging business.
Rebound in orderbook to 11-year high
Mermaid Maritime (MMT) is a subsea services provider for the offshore oil & gas (O&G) industry worldwide.
| Mermaid Maritime | |
| Share price: 16 c | Target: 20 c |
As per the company’s 2Q24 presentation, it owns a fleet of 7 vessels (including 3 saturation diving support vessels (DSVs)) and 14 ROVs with around 47 third-party vessels chartered for projects in Southeast Asia, Middle East (ME), West Africa and North Sea.
Over 2020-1H24, MMT grew its OB four-fold to US$976m, primarily on new larger-scale decommissioning contracts in Thailand and North Sea.
It also renewed key subsea inspection, repair and maintenance (IRM) contracts in the ME at higher values.
 "We forecast MMT's net profit to grow by 22% yoy in FY24F and 70% yoy in FY25F. Despite scheduled dry-docking of two subsea vessels in 2025F, the company's high-margin cable-laying projects and the operational efficiencies gained from deploying new vessels like the Hilong 106 and Huan Qiu 1200 for decommissioning work should cushion the impact, in our view." -- CGS International |
Tight global vessel supply is driving higher subsea fleet utilisation
The global subsea vessel market is experiencing a supply crunch due to rising demand from O&G exploration and minimal newbuild orders.
Clarksons data show that only 3 DSVs have been delivered since 2023, with 1 more on order.
MMT has one of the largest DSV fleets (3 owned + 1 chartered) in the world, and improved utilisation of its IRM vessels to 80% in 1H24 from 50% in 2021.
High global rig utilisation, which is expected to stay above 90% till 2028F, according to Westwood’s Riglogix, puts MMT in a good position to capitalise on the sustained demand for subsea services, in our view.
Ageing oil & gas fields to catalyse large-scale decom. spend
With nearly 2,600 platforms in APAC and more than 1,300 wells in the UK Continental Shelf set to retire over the next decade (according to Wood Mackenzie and North Sea Transition Authority), we see multi-year industry tailwinds for MMT.
Mermaid has been ramping up its Transportation & Installation (including decom.) segment since 2021 and added 3 large vessels on charter in YTD 2024.
The segment’s share of revenues rose to 60% in 2Q24 from 6% in 2021 on execution of large-scale orders won in 2023.
We expect operational efficiencies in decom. projects and high-margin cable-lay order wins to cushion the net profit impact from two subsea IRM vessels going into dry-dock in 2025F
| Initiate with a TP of S$0.20 We initiate coverage on MMT with an Add call for its strategic position of benefiting from the global subsea vessel supply crunch.  Meghana Kande, analystOur TP is based on 11x 2025F P/E, a c.15% discount to global peers given MMT’s smaller scale. Key catalysts: order wins, higher-than-expected day rates and fleet utilisation, fleet expansion and M&A announcements. Downside risks include escalation of geopolitical tension in the Middle East, poor weather and prolonged dry-dock impacting vessel utilisation, and order cancellations. |
Full report here.
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CGS CIMB |
CGS CIMB |
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Mermaid Maritime Charting new waters
■ MMT’s orderbook (OB) of US$976m, as of 2Q24, is at an 11-year high due to new decommissioning orders and renewal of IRM contracts at higher values. ■ Limited newbuilds over the past decade have kept global vessel supply tight, driving MMT’s fleet utilisation to over 80% in 1H24, up from 50% in 2021. ■ We expect MMT to achieve net profit growth of 22%/70% in FY24F/25F from execution of larger-scale decom. projects and high-margin cable-lay orders. ■ The stock trades at a 33% discount to global peers’ 2025F P/E. We initiate on MMT with an Add call and TP of S$0.20, based on 11x 2025F P/E.
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New World Development Focus reset to deleveraging
■ NWD’s disappointing FY6/24 results were as expected. We think its exCEO’s resignation was due to the fallout from its rapid expansion in 2016-21. ■ New CEO said NWD will take concrete measures to deleverage, by disposing of non-core assets, stringent capex control and temporary dividend halt. ■ We think that NWD will be able to weather the current challenges while huge FFR rate cuts by 2025F should help it reduce interest expenses markedly. ■ NWD trades at a 78% discount to NAV (which we believe has priced in most of its negatives). We reiterate an Add rating with a lower TP of HK$9.5.
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PHILLIP SECURITIES |
PHILLIP SECURITIES |
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Zixin Group Holdings Food security helps to double profit
• We expect earnings to at least double to RMB 30.9mn. The government aims to reduce reliance on imported soybeans and shift more to alternatives such as sweet potatoes. The promotion of food security, along with improved new facilities like cold storage and new high-tech manufacturing, will double volume. Gross margin is anticipated to increase by 2 ppt YoY to 34% in FY25e, as Zixin expands its processed sweet potato product offerings and benefits from higher margins products.
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Pacific Radiance Ltd The Revival
▪ We expect earnings to jump in FY25e, backed by more than US$40mn of charter contracts, the construction of crew transfer vehicles, and increased scale in ship management operations. The restructuring of associate Logindo will further enhance the company's valuation.
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| UOB KAYHIAN | UOB KAYHIAN |
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Sea (SE US)
a) Shopee's partnership with YouTube to drive site traffic, b) second round of take rate hikes this year which indicates easing competition, and c) Thailand ‘svirtual bank licence application which could expand SeaMoney’s ecosystem. We expect to see further re-rating for SEA as it builds up stronger moats. Maintain BUY with a 28% higher target price of US$112.54.
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RHB Bank (RHBBANK MK) ]Asset Quality Concerns Behind; Upgrade To BUY
The stock is currently trading at an attractive 0.80x P/B, well below the sector’s 1.24x despite delivering similar ROE. This makes it a clear laggard, with current valuations at -1SD to its historical P/B mean. In view of its stable asset quality and strong preprovision growth of 13%, we believe the stock is poised to outperform the sector in 2H24. Potential capital management optimisation offers further upside. Upgrade to BUY with a higher target price of RM6.80(10.0% ROE, 0.90x .2025F P/B) |
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CGS CIMB |
UOB KAYHIAN |
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VS Industry Bhd
■ 4QFY24 results beat expectations on stronger-than-expected margins, stemming from its vertical expansion initiatives and a better product mix.
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Emperador Inc (EMI SP) 2Q24: Weak Results As Demand Falls
EMI reported weak 1H24 results with lower revenue (-7.9% yoy) and PATMI (-19.6% yoy), dragged by both the brandy and Scotch whisky segments as demand remains weak. Increased promotional activities and higher interest costs continue to pressure overall margins. As there are no near-term catalysts and ongoing headwinds, we think that EMI is overvalued at the current valuation levels. We downgrade EMI to SELL with a lower PE-based target price of S$0.30 (S$0.48 previously).
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UOB KAYHIAN |
MAYBANK KIM ENG |
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Baidu Inc (9888 HK) Key Highlights From Baidu Cloud Intelligence Conference 2024
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Gamuda (GAM MK)
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| LIM & TAN | LIM & TAN |
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Venture Corporation Limited ($14.16, up 0.36) has received an award at Lam Research Corporation’s (NASDAQ: LRCX) Supplier Excellence Awards 2024, which recognised nine companies from around the world for performance across a range of categories. Lam Research is a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. As quoted in Lam Research’s press release dated 23 September 2024, Venture was a winner for the Rapid Prototype Materials Performance Award, for exceptional support, responsiveness, and on-time delivery, which enabled Lam Research to provide solutions faster to meet customer needs. Venture’s US and Southeast Asia sites collaboratively partner Lam Research in providing soluƟ ons and services with the highest level of quality, agility and excellent value. Venture is honoured to be the only Singaporean company selected for this prestigious award, an affirmation to our pursuit of excellence and commitment to customer satisfaction. We continue to like Venture Corp as it stands shoulder to shoulder to the world’s best in class tech & manufacturing companies and also endorsement from Lam Research. We maintain our “Accumulate” rating given its 10-15% growth expected going forward against PE of 12-13x, while it yields 5.3%.
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We highlight the key points from Starhill Global’s ($0.535, up 1 cent) latest annual report Starhill Global REIT’s porƞ olio comprises nine mid- to high-end properƟ es in six Asia-Pacific cities and portfolio is characterised by its master and anchor leases which make up about 53.1% of gross rent. Outlook: Despite prevailing market uncertainties, the macro environment ahead could be turning a corner as moderating inflation is likely to result in a decline in interest rates. Starhill Global remains positive on the outlook for Singapore, given the improving tourist arrivals and limited new supply of office and retail space in the Orchard Road vicinity. This should translate into sustained occupancy, especially with the recently renovated Wisma Atria Property. Residents in the east will find it more convenient to get to the malls in Orchard Road, with the completion of Stage 4 of the Thomson East Coast Line. Starhill Global remains cautious on Australia as the elevated interest rate environment and inflationary pressures will continue to impact consumer spending, further moderating retail trade. Notwithstanding this, Starhill Global will remain focused on elevating the portfolio by exploring asset o.enhancement opportunities to future-proof it’s portfoli. |
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• It's likely not an overstatment that Artificial Intelligence (AI) represents a generational shift with the potential to profoundly alter human society. As AI reshapes industries and catalyse big advancements in fields such as healthcare and transportation, its rise requires substantial computational power and storage, which in turn fuels the demand for data centers. • Data center owners include REITS, which earn revenue from, for example, large enterprises and hyperscale clients (such as cloud service providers) that lease significant amounts of space and resources. On the Singapore Exchange are a handful of such REITs. UOB Kay Hian gives its take on these in the table below.  • Maybank has put out its own report on data centre plays. Its picks are not necessarily REITs but Malaysian and Singapore companies with several business segments (like ST Engineering), including exposure to certain aspects of the data centre boom.  • The Maybank report is here while excerpts of the UOB report are below... |
Excerpts from UOB KH report
Analyst: Jonathan Koh, CFA, MSc Econ
Data Centre REITs – Stellar Growth And Tight Vacancies In Singapore And The US
| Core hubs in Northern Virginia and Silicon Valley benefit from rising AI demand and average asking rents have increased 7% to US$174/kW/month across North America in 1H24. Our preferred BUYs are DCREIT (Target: US$0.88) and MINT (Target: S$3.03) for their focus on the US market. Vacancy is tight in Singapore after a three-year moratorium on new construction. KDCREIT (Target: S$2.28) benefits from the government’s plan to double capacity for international subsea cables. |
- WHAT’S NEW
• Singapore is the most power-constrained data centre market in the world with an extremely tight vacancy rate of 1.0%. We attribute the shortage to the government’s strict adherence to climate change commitments and the resultant three-year moratorium on building of new data centres in 2019-22.
The moratorium was only recently lifted but new supply is expected to come on stream from 2026 onwards. Thus, capacity is expected to remain tight with rents on an upward trend in 2H24 and 2025.
• Singapore expanding data centre capacity by one third. The Infocomm Media Development Authority (IMDA) has launched the Green Data Centre Roadmap, which provides capacity of 300MW to support sustainable growth of data centres.
Additional capacity of 200MW will be made available to operators using green energy. The combined new supply of 500MW represents a one-third expansion to existing capacity of 1,400MW.
To date, IMDA has awarded four data centre operators, namely AirTrunk-ByteDance Consortium, Equinix, GDS and Microsoft, with total capacity of 80MW in Jul 23.
IMDA aims to reduce power usage effectiveness for all data centres to below 1.3 over the next 10 years.
• Singapore remains the preeminent hub in Southeast Asia. Singapore is the preferred data centre hub, being the dominant financial hub within Asia.
It is also a connectivity hub linking Southeast Asia to the global network through its 26 subsea cables and three landing sites. It has a well-educated workforce, excellent infrastructure and political stability.
• SG+ creates unified data centre ecosystem for Southeast Asia. SG+ strategy positions data centres in Singapore as the regional control tower and taps on complementary strengths and capacities of scalable data centres in Johor and Batam.• Singapore staying ahead of competition. Singapore targets investments of at least S$10b to double its capacity for international subsea cables and landing sites over the next decade to support the widespread usage of new AI applications.
The domestic infrastructure will be upgraded to provide broadband speed of 10Gbps over the next five years.
The government is working with the private sector and research institutions to scale the usage of autonomous systems using new technology, such as low-earth orbit satellite.
Data centres in Singapore are more suited to mission-critical and low latency (time sensitive) applications, such as financial services and AI inference applications.
Data centres in Johor and Batam cater to AI machine learning applications, which require lots of physical data centre space and consume huge quantity of electricity and water.
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Full reporthere
See also Maybank Kim Eng's report on data centre plays.
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UOB KAYHIAN |
UOB KAYHIAN |
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REITs
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Automobile – China Weekly: PV Sales Down 4.8% yoy, Missing Estimates
China’s PV insurance registrations fell by 4.8% yoy and 4.4% wow during 16-22 Sep 24, missing estimates. PEV market share dipped by 3.6ppt wow to 49.5%. Denza has become a wholly-owned subsidiary of BYD but has dropped out of the top 10 in the weekly sales rankings for pure-play EV names, replaced by GWM’s Wey brand. Joyson is rapidly ramping up production capacity to fulfil the new orders intake. Maintain MARKET WEIGHT. Top BUYs: CATL, Desay SV and Geely. Top SELL: GAC.
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CGS CIMB |
CGS CIMB |
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REIT What’s in the price?
■ We remain positive on SREITs as further Fed Funds interest rate cuts would be supportive of yield spreads and lower cost of capital to spur growth. ■ Despite the recent share price rally pricing in some of the rate cut expectations, sector valuations remain inexpensive. ■ We maintain CLAR and FLT as our top picks and add LREIT.
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New Oriental Education Positive on education margin expansion
■ Due to weak consumption sentiment, we expect slower revenue growth for New Oriental’s premium 1x1 overseas test preparation classes in 1QFY5/25F. ■ We believe the overall demand for education services is still strong and New Oriental’s (EDU) revenue should grow 27% in 1QFY5/25F and 31% yoy in FY5/25F. ■ Although 1QFY5/25F overall net profit will be impacted by the one-off expenses related to East Buy, we expect education non-GAAP OPM to expand by 200bp yoy. ■ We reiterate Add given strong education growth, with new DCF-based TP of HK$74.1
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| LIM & TAN | LIM & TAN |
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Hanwha Group has issued a statement on Sept 25’2024 to explain its rationale behind its offer price for Dyna-Mac ($0.63, unchanged). The group, which is the substantial shareholder of Dyna-Mac, made a tender offer of 60 cents per share for the shares it does not own in the Mainboard-listed company on Sept 11’2024. Hanwha said that their offer is based on a rigorous review of factors affecting Dyna-Mac
Dyna-Mac’s market cap stands at S$794mln and currently trades at 10x Forward PE (ex-cash PE is around 5x). Given our target price of S$0.715 (consensus target price is between 64cts - 71.5 cts) continues to represent at least a 13.4% upside potential, and the founding family thinks that S$0.60 is not adequate and finally the offer is not yet final, we recommend that investors “HOLD” for the IFA’s recommendation to the board of directors and minority investors to make a decision.
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SIA Engineering ($2.38, down 4 cents) reported that SIAEP, a subsidiary of SIA Engineering Company Limited (“SIAEC”), is the first Embraer Authorised Service Centre in the Asia-Pacific region to perform maintenance, repair, and overhaul services for Embraer’s E-Jets E2 family of aircraft. SIAEP has been an authorised service centre in Asia-Pacific for Embraer’s first-generation E-Jets since 2017. SIAEP has three hangars located in Clark, Philippines. We continue to like SIE given that it is moving up the technical
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- SIM LEISURE: No roller-coaster, this stock. It's just been charging up (+500%) in past 2 years
- ANALYSTS SAY: Buy, Sell, Hold (25 Sept)
- CHINA AVIATION OIL: Will China's latest economic stimulus lead to more air travel? This company (3.6X ex-cash PE) stands to benefit
- ANALYSTS SAY: Buy, Sell, Hold (24 Sept)