STX OSV Holdings Limited: Leading orders for high-end vessels; BUY

Undervalued, under-researched leading OSV shipbuilder. STX OSV is one of the leading global shipbuilder of offshore support vessels (OSV) with nine shipyards in four countries. High oil prices are driving new orders for high end offshore support vessels and in our view, STX is in a good position to capture the returning demand for high-end platform supply vessels (PSV) and offshore subsea and construction vessels (OSCV) given its leading edge technology and strong market share in the high-end segments. The company is set to register +18% core net profit CAGR over FY09-12F, driven by improvement in project execution and healthy new order intake. We initiate coverage with a BUY and TP of S$1.56, +30% upside from current levels.

Focus on the high-end segment; high entry barrier. STX OSV has shipyards in Norway, Romania, Vietnam and Brazil. The company is focused on building high-end OSV and have leading market share for AHTS above 20,000BHP and PSV above 4,500DWT. Unlike smaller shipbuilders that produce small/mid-sized OSVs, STX OSV has seen strong orders, with new orders of close to NOK12b in 2010 vs. NOK5.7b in 2008 and NOK4.5b in 2009. With rising charter rates for certain segments such as high-end PSVs, we expect more orders for STX OSV.

Earnings outlook: +18% EPS CAGR over FY09-12F. We expect growth to be driven by existing orderbook of ~NOK20b, new orderbook and improved execution on projects. We forecast STX OSV to secure NOK12b and NOK15b new order wins in FY11F and FY12F respectively and 9% EBITDA margins.

Valuation: S$1.56 target price on 12x FY11F P/E. We value STX OSV based on 12x FY11F P/E, 30% discount to the average P/E valuation for big-cap offshore marine stocks. Our TP values the stock at 2.9x FY11F P/B and implies 30% upside from its last closing price. BUY.

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