Jack Phang Investment: Mermaid Maritime - Changes in Progress (Mar 2014)

06 March 2014

Mermaid Maritime - Changes in Progress (Mar 2014)

Background of the Company

Source: Company

The Fundamental of the company has changed after the changes of board of directors since few years ago. Mahagitsiri family took control of the company and managed to grab more offshore business from around the world due to better business relationship with the customers as well as focused on the niche markets - subsea & tender rig services.

Simple Financial Ratio (Estimated by Jack Phang)

No of Outstanding Shares:	1,416,701

Shares Price:	0.475

Market Cap (S$000)	672,933

NAV (US$)	0.3815
NAV (S$)	0.4845

P/B Ratio:	0.9805

Estimated Annualized EPS (US$)	0.0371
Estimated Annualized EPS (S$)	0.0472

Estimated Annualized PE Ratio:	10.07

Estimated DPS (S$)	0.01

Estimated Dividend Yield	2.11%

Income Statement

Company reported net profit for quarterly report ended 31 Dec 2013 of US$13M on the back of revenue of US$84M, a significant improvement compared to corresponding period last year. This is mainly due to the surge of contribution from both subsea and drilling services. Net profit margin stands at a healthy 16% due to other income such as US$7M increase in income from associates as well as gross profit margin improvement to around 20% due to product mix changes.

The company is quite confident in next 2 - 3 years as there is a US$750M back log income apart from the associate's business. Below is the breakdown of the order book achieved by company so far:

The utilization rate of the tender rigs is now at more than 85%, which indicates a market with strong demand in subsea services. With company's order of 2 tender rigs targeted to be delivered by 2016, the revenue from tender rigs would be doubled from 2016 onward.

Balance Sheet

Below is a snapshot of balance sheet of company ended 31 December 2013:

Assets. Source: Company, Jack Phang Compilation

Liabilities & Equity. Source: Company, Jack Phang Compilation

So far the company managed to have a healthy balance sheet with welly managed debt level (about 20% total debt to asset ratio). Note that the company raised the fund from shares right issues last year to support the growing business & working capital needs as it has also placed an order on January 2014 for two more drilling rigs and 1 multipurpose subsea dive support & construction vessel. Nonetheless,I believe that the company may not issue the rights this year unless there is any further business opportunities the company must seize.

Cash Flow

Company managed to report a net cash flow from operating of US$18M, about US$3M improvement from corresponding period previous year. I believe that the company would be able to maintain free cash flow status until year 2016 due to improved net cash flow from operating.