Jaya Holdings to milk benefits from partnership with IHC Merwede

A 24% compound annual growth rate forecast has been penciled in.

According to CIMB, Jaya's game-changer comes from its partnership with IHC Merwede, which will enable the company to focus on higher-value, build-to-order projects. There could be upside as it has not modelled in any shipbuilding orders. CIMB also adds, accompanied by a new set of leaders, there is now a strategic focus on chartering, which should underpin a stable earnings base and 3-year core earnings CAGR of 24% through FY15.

Here’s more:

With net cash and trading below book, we initiate Jaya with an Outperform and target price at 1x CY13 P/BV, as expected ROEs match COEs (also in line with its 4-year mean and peer average). Jaya is also our top pick in our small-mid-cap offshore coverage. 

We see catalysts from higher utilisation and dayrates, and higher-value shipbuilding orders from its partnership with IHC. Longer term, the resumption of dividends could offer catalysts.

We project that Jaya would turn net cash in FY13 (FY12: 0.1x), even after accounting for capex of US$265m over FY13-14 for its newbuild programme. We estimate that Jaya would have net cash of US$72m by end-FY13 and US$216m by end-FY14 (S$0.35/share or 50% of share price). 

This raises the scope for dividends, especially as Jaya is now free from the scheme restrictions. We forecast that Jaya could comfortably dish out 2Scts DPS for FY14 and 4Scts for FY15. 

Despite the recent rerating, we see value in Jaya as it is trading below book. With its focus on chartering, we contest that Jaya should trade nearer its book value as value is derived from its asset-base. We also argue that a 1.0x P/BV should be warranted, given that we project uplift in Jaya‟s ROE to a 3-year forward average of 8.5%, which would meet its 7.3% COE. 

From a majority-owner perspective, valuation is even more compelling. We estimate that Jaya‟s fleet has a market value of US$681m or S$1.10/share, a ~55% premium overtrading price.