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.