AmResearch: RM1.70 fair value for Sealink shares

Published: 2008/07/02

AMRESEARCH estimates that shares of Sealink International, a shipbuilder, have a fair value of RM1.70 each when they make their debut on Bursa Malaysia.

This implies a 36 per cent potential upside from the initial public offering price of RM1.25 each, and values the company at 12 times its forecast fiscal 2009 earnings.

Miri-based Sealink does shipbuilding and the chartering of vessels. It is an integrated service provider of support vessels for the offshore oil and gas industry.

AmResearch said the company's shipbuilding and chartering activities are highly complementary and provide it a competitive edge over rivals who do pure shipbuilding or chartering.

"In addition to business intelligence gathered in both market segments, the model gives it the flexibility to sell or retain completed vessels for hire to take full advantage of prevailing market conditions," the broker said.

Sealink has two shipyards in Miri, measuring 12.4 ha in total, which can build 15 vessels a year. The shipyards are operating near full capacity. The chartering division has a fleet of 29 vessels which are mainly under short-term charter contracts.

With the robust growth expected for oil and gas exploration and production at shallow and deepwater sites, demand from marine support services are expected to be strong globally.

In Malaysia alone, revenues from shipbuilding and chartering of vessels for the offshore oil and gas industry are expected to grow at 20 per cent average a year over the next five years.

"Management has long-term plan to build the group as a sizeable integrated service provider," AmResearch said.

"Bullish market conditions in the next few years should allow the group to reap good profits, albeit lower than if it were to sell all its vessels constructed from shipbuilding and grow its fleet of vessels," said the report.

Sealink's strategy to grow its charter fleet should translate to more stable earnings base. The group is also setting its presence globally by selling its vessels overseas.

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