Feb 06, 2017 14:16:11

Logindo Samudramakmur: Key Takeaway From Analyst meeting

Last Friday, Logindo Samudramakmur ($LEAD) has organized an analysts meeting to explain on its impending rights issue plan and updates on its business outlook. We've came out with mixed bag view on the stock, although solvency risks of LEAD are now significantly lower than last year, earnings recovery is still farfetched due to insufficient numbers of jobs in the market, producers are not bullish on oil price yet, granted the higher YoY crude oil price, some key points as below:

  1. LEAD is aiming to raise USD10m/IDR135bn from this corporate exercise, which translate into a maximum of 63.5% of its current paid up and issued share capital. The rights are priced at IDR83-92/share, or 20% discount to Theoretical ex rights price in a fully subscribed scenario, according to share underwriter.
  2. LEAD's 35% shareholder, Pacific Radiance Ltd has committed to fully subscribe. Owner Pak Eddy Logam and his family owns 40% of LEAD, he has indicated his will to subscribe and is looking for funds to do so. The remaining 25% are owned by general public. All in, management expect to raise at least USD5-6m from this exercise.
  3. Throughout the meeting, owner has repeatedly emphasize on his willingness to sustain the business and the pain of doing a major rights issue at current valuation (0.17x P/B) . Having said, he believe business has seen its bottom point while improvement is noticeable due to the restructuring of LEAD's debt and the impending job flows from Tangguh Train 3 by BP, an USD8bn LNG project.
  4. Coming to the business, LEAD has extended and reduced the principal repayment of its debt from a monthly commitment of USD2.3m to USD890K. Management indicated net cash outflows as of November 2016 was USD200K/month, significantly lower than earlier 2016 due to combination of debt restructuring and cost cutting.
  5. LEAD is bidding for 15 long term charter contracts from Tangguh Train 3, mostly high tier OSV jobs, apart from that, the project's main contractor, Chiyoda will be offering numerals short term jobs from 3Q17 onwards. Competition for these jobs are likely to be steep, higher utilisation is possible but freight rate will remain depressed.

All and all, we see LEAD as an appealing 24-36 months investment case due to its depressed valuation of 0.17x P/B, significantly lowered solvency risks and higher utilisation rate from 2H17 and suggest shareholders to subscribe to the rights. On 12 months basis, profits (share price driver) will likely remains depressed due to an oversupplied OSV market, this is in combination of a new oil production sharing regime that might exert further pressure to the servicing players. (Norman Choong, CFA)