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Summary
of Contents
PULSE TRACK
-
Strong growth in
August 2006 IIP despite floods
STOCK IDEA
South East Asia Marine Engineering &
Construction
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs270
Current market price: Rs190
At a high
tide
Key
points
-
Boom in
offshore service industry: With the surge in crude prices and
drop in global spare production capacity for oil, exploration
activity has picked up globally. The IEA estimates that USD3.6
trillion would be spent on oil and gas exploration over 2003-30.
The day rates for offshore oil and gas drilling, and support
assets including MSVs are sky-rocketting as a result of this rise
in the E&P spend.
-
SEAMEC to
benefit from rising E&P spend: With its fleet of three
MSVs, SEAMEC is a direct beneficiary of this boom and the higher
charter rates for the MSVs. It has recently entered into a
long-term charter for its MSVs and that too at high charter rates
of USD40,000-47,000 compared with USD20,000 per day for the
earlier contracts.
-
New vessel
to further boost revenues: SEAMEC has recently acquired a
vessel named Oceanic Princess, which is being converted
into a diving support vessel (DSV). This DSV (expected to commence
operation by Q1CY2007) and the three MSVs should help its revenues
to grow at a CAGR of 70% over CY2005-07E.
-
Profit to
grow at a CAGR 126%: With a strong revenue growth, a debt-free
status and the tonnage tax scheme, the earnings per share are
expected to grow at a CAGR of 126% to Rs17.4 in CY2006 and to
Rs29.2 in CY2007.
-
Buy with a
price target of Rs270: At the current market price of Rs190,
the stock is trading at 6.5x CY2007E earnings and 4.1x CY2007E
EV/EBIDTA. Compared with its global peers, SEAMEC is trading at a
discount of 30%. It has the highest EBIDTA margin and RoE compared
with them. We believe the discount is not justified. We recommend
Buy on SEAMEC with a price target of Rs270.
SECTOR UPDATE
Automobile
Performing
against all odds
Despite the
impact of floods, heavy monsoons and the inauspicious Shraadh
Paksha, the automobile industry reported a strong performance
for September. The car segment delivered a good performance with a
22.4% domestic growth and the two-wheeler sales too grew by 18.9%
despite an average performance by the market leader, Hero Honda. The
overall automobile sales volume rose by 20% with the domestic and
export sales rising by 19.7% and 24.2% respectively.
INDUSTRY UPDATE
Equity AUMs rise in line with
market movement
The
AUM for equity funds increased by 6.2% to Rs121,332 crore in
September 2006. The rise was in line with the general upward
movement seen in the equity
markets. |
