Wintermar Offshore Marine: Shipping

THE COMPANY: Established in 1970, Wintermar Offshore Marine (WINS) is one of the largest offshore marine services companies based in Indonesia. For more than 40 years, WINS, owned by the Layanto family, has catered to the upstream offshore oil and gas sector, providing fleet support for exploration, development and production activities. At the end of 2012, the company had 64 vessels, including 32 low-tier vessels, 27 mid-tier vessels and five high-tier vessels for a broad range of marine support services, from the transportation of crew, equipment and supplies to anchor handling, towing and mooring of offshore rigs. WINS’s clients include oil majors such as US-based ConocoPhillips and Statoil Indonesia, which in aggregate accounted for some 21% of total 2012 revenues.

The company has three revenue sources, with the owned vessels division as the largest contributor, at 57% of the total top line for the first nine months of 2012, followed by the chartered vessel division at 35% and other marine services at 8%. The owned vessels division provided the highest gross margin (46%) in the first nine months of 2012, compared to chartered vessels (5%) and other marine services (13%).

In June 2012 WINS obtained approval from shareholders to raise Rp150bn ($15m) through a non-preemptive rights issue of up to 307m new shares, 8.6% of the total, with most of the proceeds going towards expansion plans to replace low-tier vessels with higher margin mid- and high-tier vessels. Low-tier vessels have a gross margin of around 38%, compared to 45-60% for mid- and high-tier vessels.

DEVELOPMENT STRATEGY: For WINS, future growth will come from fleet rejuvenation coupled with further exploration and exploitation activities of Indonesia’s oil and gas sector. WINS obtained 10 mid- and high-tier vessels for $80m in 2012, while at the same time disposed of five low-tier vessels. However, the company expects three to four vessels to be delivered in the first quarter of 2013. With the delivery in 2012 of seven new vessels and strong outstanding contracts of $196m ($188m for long-term contracts and more than 50% for owned-vessel contracts) from major upstream oil and gas players, WINS is set to experience solid earnings growth over the next two years.

Future expansion will also stem from 2013 capital expenditure of $50m-60m that will include four new mid- and high-tier vessels. The growth strategy for 2013 includes plans to focus on deepwater project services through a signed agreement with Singapore’s PACC Offshore Services Holdings (POSH) to establish a joint venture (JV), catering to the anchor handling, tug and supply (AHTS) vessels market in Indonesia. WINS has a 50% stake in the JV, while POSH owns 49% and 1% belongs to a local shipping company. The JV will own and operate two Indonesian-flagged AHTS ships, WINSPOSH Rampart and WINPOSH Resolve. As oil and gas exploration shifts towards eastern Indonesia, the POSH JV is a positive move, allowing the utilisation of POSH’s expertise in deepwater support services.

FORECAST: The implementation of the cabotage law at the end of 2012, preventing specific foreign-flagged vessels (such as diving support vessels, platform supply vessels and AHTS vessels with over 5000 brake horsepower and dynamic positioning) from operating in Indonesia, will translate into greater demand for domestic-flagged vessels like those of WINS. Furthermore, in 2011-15 Indonesia should require 235 new offshore support vessels, suggesting room for growth. With an additional 14 vessels in 2012-13, WINS will benefit from the higher contribution of the owned-vessels division (61% of total 2013 revenue), which will pave the way for gross margin expansion to 35.5%, compared to the 2012 gross margin of 30.7%.

At this stage, WINS is expected to record 2012 earnings growth of 14% year-on-year (y-o-y) to $19m, before rising to $25m, up nearly 30% y-o-y, in 2013. Above-market earnings per share growth coupled with a cheap 2013 price/earnings ratio of 6.9x. This presents some 60% discount to the Jakarta Composite Index, providing attractive buying opportunities for investors.