SEAMEC (earlier known as South East Asia Marine Engineering and Construction) is a 78.2% subsidiary of French marine construction company Technip. It’s one of the cheapest stocks amongst peers and its earnings growth is attractive, considering higher charter rates and commissioning of a new vessel. It provides an upside potential for investors over the next 12 months.
BUSINESS: It owns a fleet of three multi-support vessels (MSVs), which support offshore exploration and production (E&P). MSVs are fitted with various equipment, which enable them to provide critical services including fire fighting and diving support. They are required by petroleum exploration companies such as ONGC for underwater/sub-sea engineering services, deep-sea diving, inspection of underwater-structures, rescue operations and fire fighting. With heightened petroleum E&P activity the world over, there is a global paucity of marine assets, which has triggered a two-folds rise in MSV charter rates over the past couple of years. It purchased a cable-laying vessel in June ’06 for around Rs 83 crore, which is currently being converted into an MSV at a further cost of around Rs 70 crore. Commissioning of the vessel, which has been delayed by six months, is now likely by end of October ’07. This will help it add to its topline and bottomline from the December ’07 quarter onwards.
FINANCIALS: For H1 FY07, it registered a 61% growth in revenues to Rs 102.8 crore. Despite a slight weakening of PBDIT margins, the company went on to post a 37% growth in its bottomline at Rs 43.98 crore. It is a cash-rich and debt-free company. Its September ’07 quarter results will face some pressure as one of its vessels has lost around 35 days of work on statutory dry-docking. But, as charter hire charges have improved since last year, they are likely to compensate for the same. It has scheduled dry-docking for another of its vessels in the December ’07 quarter. However, the financial performance during that quarter will remain robust due to the addition of the new vessel. The full benefit of the new vessel, coupled with higher charter rates, will be realised in ’08.
VALUATIONS: Seamec’s valuations are low visa-vis its peers, making it an ideal investment candidate. It’s currently trading at a P/E of 9.2, based on trailing twelve months’ earnings, which is less than half the P/E of its peers. While, based on the book value as on December 31, ’06, its current market-price-to-book-value ratio is 2.9, which will fall further by the end of current year. For the CY07, we expect Seamec to report a profit after tax of more than Rs 75 crore, which should jump to Rs 110 crore in ’08. Considering the forward EPS for ’08, the P/E, at current market price, is 5.9. Nevertheless, the investor should be wary of a few risks. The depreciation of the dollar may have a negative impact on its earnings as most of its billing is dollar based. Seamec does not have a diversified asset portfolio and any global stagnation in MSV charter rates in the future may have an adverse impact on the company’s growth prospects.
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