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Friday, 5 November 2010

STX OSV Holdings Limited

STX OSV Holdings Limited ("the Company")  is offering 180m New Shares and 145.646m Vendor shares for sale at $0.79 each in its IPO. Goldman Sachs is the Global Coordinator while DBS is the Singapore public offer coordinator. 309.363m shares will be placed out while 16.283m shares will be via public offering. There will also be over-allotment option and stabilization action, if necesary. The market cap before allotment is around S$1.05 billion


The Company is one of the major global designers and shipbuilders of offshore and specialized vessels used in the offshore oil & gas exploration and production and oil services industries. Headquartered in Norway with about 9,000 employees, it has 10 yards (1 under construction) spread over 4 countries (Norway -5, Romania -2, Brazil - 2 and Vietnam -1). Singapore is the sales office with only 4 employees. Its vessels include the AHT (Anchor Handling Tug supply vessels), PSV (platform supply vessels), offshore subsea construction vessels and others such as coast guard vessels, ferries, ice breakers and seismic vessels. It is part of the STX group of companies and its decision to list in Singapore somewhat is an endorsement that SGX is a key listing venue for shipbuilding companies. 


The current order book indicate 23 vessels to be delivered in 2010, 23 in 2011 and 13 in 2012 and 5 in 2013. The order books for the later years should fill up in the coming months if the oil   price continue to creep up and break the $100 barrier, which would then spur demand for existing and renewed exploration needs.


This prospectus is well drafted (I like it). The information is concise and straight to the point and information are greatly presented to give you a concise picture of how earnings are derived. The IPO will close on Nov 10, 2010 and 12 pm.


STX OSV's revenue for the year ended 31 Dec 2009 was $2.054 billion and profit for the year after tax was $16m. For the 6 months ended 31 Dec 2010, the revenue was $953m and the net profit after tax was $91m. EPS for year ended 31 Dec 2009 (accounting for the issuance of new shares at IPO) was US$0.014. Using a current exchange rate of 1USD-$1.29, the EPS is Singapore 1.806 cents and that translate into a historical PER of 43.7x. However, that may not be indicative of the forward PER as we are coming to almost end of the year. The fully diluted EPS for 6 months 30 June 2010 was US$0.076 or Singapore 9.804 cents. Using a simple 'pro-rating', the full year projected EPS will be 19.6 cents. That will translate into a forward PER of 4.02x (hmmm... is my computation wrong somewhere?) For analysts who attended the IPO briefing, maybe you can help me with the 'forecasted' diluted EPS from the company?).  


The Company's dividend policy is to pay a stable (preferably rising) dividend over time.  The Company expects its annual cash dividend to be no less than 30% of the Company's distributable annual profit. The NAV per share will be $0.41 versus the $0.79 IPO share price.


The IPO proceeds will be used mainly to improve the yard in Vietnam and second shipyward in Brazil and the rest will be spread across other purposes. Post listing, STX Europe Holdings will hold 68.3% of the Company. If you look at the management, they are made up of mainly Norwegians, however, the board has many Koreans. Before you starting thinking that this Company is a European company, the 3 letters "STX" might ring a bell? STX Pan Ocean was listed in Singapore before it seeks dual listing back in South Korea a few years back. STX Group is Korea's 12th largest business group by total assets and has 54,000 employees worldwide.  


Personally, i think the company is very good in timing its IPO. The Company is listing its shipbuilding unit when everyone starts to believe that the good times will be 'back' and that shipbuilding orders for the oil & gas industry will return once oil price break above the $100 mark again. The Company looks 'cheap' based on the FY2010 projected PE even just by using the half year EPS. The peers such as Cosco, Yangzijiang and Otto Marine are trading at much higher multiples, especially Cosco. Assuming a fair value range of 10-15x and assuming my EPS of 1H x 2 is reasonable, the fair value will trade between $1.96 to $2.94 (sounds too good to be true). Assuming i just use first half EPS of (0.076 x 1.28) = Singapore 9.73c. The implied ultra conservative PE fair value will be S$0.97 to S$1.46.


I think the IPO is worth investing and subscribing as it is attractively priced.

26 comments:

Anonymous said...

Hi there, Just wondering that STX OSV priced at the lower end of 79cents compared to the high end of $1.13, would you have a second thought? Like why it priced at the lower end? And do you still think it's worth going for it? Good to hear some sharing from you (:

Anonymous said...

yeah I got the same question. I saw that the amt raise is smaller than expected and the STX grp shares tanked in Korea because of this.

http://www.bloomberg.com/news/2010-11-05/stx-corp-stx-offshore-tumble-after-stx-osv-prices-ipo-at-bottom-of-range.html

Of course i think there isn't any problem with stagging given that even xinren does so well on the 1st day but longer term?

2Y Capital said...

Excellent questions from both.

Pricing is usually based on institutional demand as "they" set the price. If you look at the MIT and GLP cases, the demand were so great that the book closed earlier than indicated. In the case of STX, the demand from institutions are weaker, but they are no fools either. They will only subscribe to the IPOs if they think that they are going to make some money. As such, i wont be too worried if it is priced at the lower range of the book building price, although I would be asking why are they asking for such a 'discount'. Are there risks which we are not aware of.

The reasons why STX group prices tanked in Korea was because the investors there were expecting a higher pricing for this IPO such that the vendor sale proceeds will flow back to the shareholders there. Since the share prices there has 'risen' in expectation of a good IPO, it has fallen when the reality sets in.

Longer term wise, i think it depends on whether the oil price continue to go up to encourage capital expenditure on oil exploration equipments as well as whether the company is able to win new contracts for its highly specialised vessels. However, in the near term, i believe the IPO is well priced and shouldnt have a 'stagging' problem since it doesn't face the same "credibility" issues as the S-Chips.

ipo-maniac said...

I will give this a miss due to the price being placed at the lower end of 0.79 cents. The demand may not be so attractive for private placement thus such a compressed price. Doesn't sounds fairly priced, but take this gamble if you have quick sell-reaction on the first day of trading...

2Y Capital said...

hmmm...perhaps why it is priced at the lower range of the book building price is because the IPO sentiments have turned "sour"? hahaha... anyway, this IPO sentiment sour thing is just my gut feel and personal view.....

teacherlet said...

kind of discomforting.

if it is a really worthy buy, it ought to be oversubscribed by institution/corner stone investors.

however, it isn't so. in fact, it is being priced at the lower end...

then again, considering the numbers relative to its peers, it's actually quite attractively priced...

feels like a trap, wondering if the big fishes know something that the retail investors don't know.

so hmmm...

Anonymous said...

Hi there. I had did a comparison. There is a few facts that I think all should know.

1) STX OSV is a market leader in this field.
2) In STX Europe, it is the ONLY profit generating unit in that company, that's explains why they are listing it. From here, we can see that the Koreans from STX are actually honest ppl.
3) If we mark up with PB, PE, Dividend yield, you will realise that the numbers do not lie.
4)Oil price will rise as QE2 had prompt many to hog commodities incl oil
5) If we take a comparison wit STX PO that is listed to SGX, you will realise that they had a history of pricing at lower end.
6) Why do they list in SG? Becos Korea's daewood only command a PE Of 15, while SG's YZJ and cosco and command PE till 45. Since STX still holding on to 68.8% of STX OSV, this PE rise will impact positively on their balance sheet.

KYH said...

In my opinion, i think that if they priced at lower end, it just means institutional investors do not want it as they company will be mainly controlled by STX. Their voice will be muffled, hence, they tend to avoid it. But come to think of it, since STX has deep pockets, mainly an almost full baby of STX will prevent it from collapsing in the event of any mishaps

Anonymous said...

I think STX OSV might turned out to be a GEM.


According to bloomberg:

http://www.bloomberg.com/news/2010-11-07/stx-group-plans-ipos-for-cruise-ship-builder-china-yard-as-orders-rebound.html

"STX OSV Holdings Ltd., which makes offshore vessels that support operations on oil rigs, may win about $3 billion worth of contracts this year, about quadruple last year’s tally, Lee said. That would give it a backlog equivalent to 18 months’ work, he said. An order from Brazil for eight vessels may be signed by year-end, he said, without elaborating."

Basing on the infomation on the prospectus, STX OSV had already won an contracts that are worth $10.154Bn Norway Korner (US$1.74534Bn using exchange rate of 1 NOK = 0.171890 USD)

This means that its order book might potentially double within the next 2 months!

Anonymous said...

I did not really go through the whole prospectus, but have immediately noted that the jump in 2010 1H profit is mainly due to higher financial income and lower financial expense. May be this is some sort of creative accouting??? For prudent purpose, if we ignore the financial income and financial expense, it seems that the PER is not low also. Anyone can enlighten my thought?

PH

Anonymous said...

Hi

If u read deeper into the propectus, the way they receive payment is like how Singapore once does for its deffered payment scheme. It may be due to the 25% (an increment) from the previous they collected for 5%. Then it can also be due to orderbook rise as the oil demand peaked up resulting in an increase in order book.Hence, the financial revenue is needed.
If we ignore the revenue, it is just like saying when K REIT acquire MBLC, the extra revenue gain is useless.

Anonymous said...

I think if you look closely at the financial expenses in previous years, its usually quite substantial. However, for the 6 months of 2010, its very low.

It leads me to believe that perhaps, the financial expenses are being deferred to the second half 2010. If that is the case, then second half 2010 will be in the red. In short, you cant really use 6 months 2010 as an indication of full year earnings.

-FZB

Anonymous said...

did someone audited the prospectus? what acct standards they used hur?

Anonymous said...

this company has seriously low operating margin

Anonymous said...

You may want to take a look at the following:

http://www.sgx.com/wps/portal/marketplace/mp-en/investor_centre/investor_guide

2Y Capital said...

wow, i never know got such info available on IPO, thanks for the link! and thank you all for your participation...

Anonymous said...

Hi

Can I ask what is the intended selling price? Is $1.13 a reasonable one?

2Y Capital said...

hahaha i wish i know...

Anonymous said...

Where (on the internet)can we find the latest IPO balloting results?

Anonymous said...

The recent Sunday Times issue has commented that this is a "delisted" stock from the Oslo Stock Exchange. It was not successful in Oslo and now wants to try its luck here.

Also, high PE at 35.3 and high PB deterred me from applying.

Pahlawan has opened his mouth to say "avoid" for this counter.

Wonder why you give 3 chillies for this counter ?

2Y Capital said...

err... my comments

(1)ever see the Sunday times issue, while i was doing my own analysis i dint know it was delisted from oslo. There are so many cases of counters delisting from SGX to relist in HK as well, so dont think it is actually an issue.

(2) i am not Pahlawan as this is my own view, and dont know who he is.. perhaps you want to ask him why he gives sharkfin for Xinren while i give 1 chilli? hahaha

(3) i dont know how the stock will perform when it list and dont know what the demand from institutions are, so lets see the balloting results tonight.... will only know if my analysis is correct after it list ah.

Anonymous said...

Everyone pls see the facts and figures and take into acct the demand of the oil before following Pahlawan's comments.

Anonymous said...

Thank goodness the balloting ration showed 4.2x oversub.

Also, parent hold 72%. And allotment given to 2 major shareholders (5% each). Total not for sale is 82%.

Looking at the rest, majority is 50 lots and above. Hence, they are not those who will stag the market easily.

Hence, since total in public hands is so low, this stock is gonna rise!

Alok said...

Too bad i didn't any allotment, seems you need to apply for >100lots to be lucky!

Any recommendation guys to hit the IPO........

Anonymous said...

Any views on Mewah International IPO

Anonymous said...

Ho-ho-ho
Lots of smart-guy comments here.
Check out this one:
http://sg.finance.yahoo.com/echarts?s=MS7.SI#symbol=ms7.si;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;
Good luck with your future speculations...

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