DBS Bank upgrades Mermaid Maritime

Singapore-listed offshore vessel operator in much better financial shape, says analyst.

Mermaid Maritime has been upgraded to a ‘buy’ by DBS on the back of what the bank described as its improved risk-reward profile.

“Mermaid’s recent announcement regarding the cancellation of its two newbuild tender rigs and one diving support vessel puts to rest the risk of obtaining financing associated with those units,” said DBS analyst Suvro Sarkar.

“With more good news coming from a three year contract extension secured for the associate jack-up rig AOD III, we are now turning positive on the stock due to a more favourable risk reward profile.

“Mermaid now has low gearing of 0.11x with no bonds and no capital expenditure outstanding – a big comfort factor.

“Though the stock has rallied, we believe some upside remains on the table – our price-to-book value valuation derives a target price of SGD 0.24 (16.5 US cents), implying 29% upside.

“Chances of privatization by parent Thoresen Thai and its associated promoter group provides further upside potential.”

However, Sarkar said to one risk to the bank’s view was that a lack of orderbook renewal in 2017 would fuel uncertainty over earnings and potentially depress the share price.

“Mermaid’s orderbook has declined to $155m as of the third quarter of 2016 from a high of $473m at the end of the 2014 financial year due to a dearth of maintenance and repair work,” he said.

“However, higher and more stable oil prices post the OPEC deal should have a trickle-down effect on maintenance work, especially in the second half of 2017.”

In addition, Sarkar said Mermaid’s recent decision to extend the charter of its Indonesian-flagged vessel by another year instead of returning it, signaled higher confidence in the prospect of winning further orders in the region.