Results Review, 16 August 2013

Jaya Holdings (JAYA SP)

Neutral (from Sell)

Industrial - Shipbuilding Market Cap: USD346m

Target Price: Price:

SGD0.61 SGD0.57 Macro Risks

Good News First, Or The Bad?

Growth Value

Jaya Holdings (JAYA SP) Relative to Straits Times Index (RHS)

0.65

117

0.60

109

0.55

101

0.50 18 16 14 12 10 8 6 4 2

93





Source: Bloomberg

Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Shareholders (%) Cathay Asset Management Linden Advisers OCP Asia Hong Kong

0.20m/0.16m 22.8 7.2 0.53 - 0.73 15



 20.7 19.1 14.0

Shariah compliant

Exceptionally-high utilisation buoys returns. 4QFY13 was a bumper quarter, with fleet utilisation at a record 91% while charter revenue came in at USD29.8m and gross margin at 40%. The USD24.7m in pretax income can be split into USD17.2m from one-off gains and losses, and core earnings of USD7.5m (See Figures 1 and 2 for details). High dividend reminiscent of 2011-2012 Vard Holdings. The 3.5 cent dividend is a positive, but we see a direct parallel in Vard Holdings (VARD SP; BUY; TP SGD1.10), which had paid out a higher than normal dividend while its major shareholder(s) looked to exit the company. To be fair, this dividend should be sustained by Jaya’s recurring earnings, although the payout ratio appears high. Vessel disposals hamper near-term growth. The disposals of the Jaya Scout and Jaya Pioneer surprised us as both were profitable, with the latter being the fleet’s crown jewel. Their sale boosted Jaya’s 4Q13 profit but at the expense of recurring income for FY14F and beyond. Further delays in shipbuilding hurt medium term growth. There has been more vessel delivery delays since our 16 May report, Delays In Vessel Deliveries Hurt Future Growth. Four vessels were delayed by 1-2 months and another three by 4-11 months. This prompts us to lower our FY14F/15F forecasts by 3%/17% respectively. Upgrade to NEUTRAL, SGD0.61 TP. Jaya has fallen by 14% since we initiated coverage three months ago, and its FY13 results are a mix of good and bad news. We think its valuations can be supported by its high yield, but significant growth is still elusive. Upgrade to NEUTRAL, with a TP of SGD0.61, as we roll over to 9.5x FY14F EPS.

Forecasts and Valuations Total turnover (USDm) Reported net profit (USDm) Recurring net profit (USDm)

Jun-11

Jun-12

Jun-13

Jun-14F

99

82

202

121

Jun-15F 136

65.0

43.8

46.1

40.0

44.0 44.0

65.0

43.8

46.1

40.0

(22.3)

(32.6)

5.1

(13.1)

9.9

Core EPS (USD)

0.08

0.06

0.06

0.05

0.06

DPS (USD)

0.00

0.00

0.03

0.03

0.04

0.0

0.0

7.2

7.2

8.1

7.90

7.52

8.64

7.87

Recurring net profit growth (%)

Lee Yue Jer +65 6232 3898

Dividend Yield (%)

[email protected]

Core P/E (x)

5.32

Return on average equity (%)

15.5

9.2

8.9

7.3

7.8

P/B (x)

0.76

0.69

0.64

0.62

0.60

Jason Saw +65 6232 3871 [email protected]

P/CF (x)

2.69

7.27

3.87

2.91

EV/EBITDA (x)

9.52

na

9.39

5.17

5.17

4.95

Net debt to equity (%)

15.7

9.2

Our vs consensus EPS (%)

net cash

net cash

0.8

(2.6)

(14.6)

Source: Company data, OSK-DMG estimates

See important disclosures at the end of this report

  2  . 3 0 . 2

0 0 . 2 0 0 Jaya’s FY13 results surprised owing to USD17.6m in net one-offs, . 0 excluding which its core earnings of USD28.4m were in line, just 3% shy 0 of our prior USD29.3m forecast. The 3.5 cent dividend is a new positive 0 but vessel disposals and further delays may hurt near-term growth. As its shares have fallen 14% since we initiated coverage three months ago, upgrade to NEUTRAL, with SGD0.61 TP.



Jun-13

Apr-13

125

Feb-13

0.70

Dec-12

133

Oct-12

0.75

Aug-12

Vol m

Price Close

   

Powered by Enhanced Datasystems’ EFATM Platform

1

Jaya Holdings (JAYA SP) 15 August 2013

Additional Notes Figure 1: Review of quarterly results Year ended 31 Mar Revenue Cost of sales

4Q12

3Q12

23,282

4Q13

24,762

q-o-q

29,802

(15,177) (19,396) (17,919)

y-o-y

20% -8%

Gross profit

8,105

5,366

11,883

121%

Other income

11,683

296

20,642

6874%

General and administrative expenses

(2,263)

Other operating income / (expenses)

5,763

0

Other expenses

1,171

151

Share of associates

(77)

(1,798)

(3,091)

72%

(4,065)

n.m.

658

336%

0

-100%

14

Finance costs

(1,262)

(1,272)

(1,276)

Profit before tax

23,120

2,757

24,751

798%

Income tax expense

11,169

1,276

638

-50%

Minority interest

0

(14)

47% Improvement in margin from two sources: i) Additions of larger vessels to fleet that command higher rates and ii) Higher utilisation of fleet. 77% Jaya disposed of two operating vessels - Jaya Scout and Jaya Pioneer, which we see negatively affecting future recurring income. 37% -171% Mostly reconfiguration costs on vessels in shipbuilding programme. -44% This line does not appear in 4QFY13 results, having been reclassified into the other lines. -100% 1% 7% Core pretax income of USD7.5m and one-off gains of USD17.2m in 4QFY13. -94%

0

PATAMI

34,289

Revenue Breakdown

4Q12

3Q12

4Q13

OSV Chartering

23,281

24,372

29,723

22%

0

390

79

-80% n.a.

n.a.

Total

23,281

24,762

29,802

20%

28%

PATAMI Breakdown

4Q12

3Q12

4Q13

Shipbuilding

4,019

0%

Remarks

28% Exceptionally high vessel utilisation of 91% in 4Q13 led to revenue jump. 18%

25,389

Others

OSV Chartering

5,656

Shipbuilding

17,313

Others

11,319

Total

34,288

PATAMI Margins

4Q12

532%

q-o-q

q-o-q

4,565

10,708

135%

-269

-5,078

1788%

18,340

-6721%

-277 4,019 3Q12

23,970 4Q13

496% q-o-q

OSV Chartering

24%

19%

36%

+17ppt

Shipbuilding

n.m.

-69%

n.m.

n.m.

Others

n.m.

n.m

n.m.

n.m.

Total

147%

16%

80%

-26% Core PATAMI this quarter is USD8.2m, netting off both disposal gains and the reconfiguration costs and losses on vessel sales.

y-o-y

Remarks

28% Exceptionally-high fleet utilisation of 91%. Going forward, revenue should fall as Jaya Scout and Jaya Pioneer have been disposed of, and only pick up from additions of vessels. n.a.

y-o-y Remarks 89% We have reclassified disposal gains into Others. Core OSV earnings this quarter were about USD10.7m. -129% Losses from sale of 16,000bhp AHTS vessels and reconfiguration costs of other vessels in shipbuilding programme. 62% Disposal gains on Jaya Scout and Jaya Pioneer in 4Q13. -30% y-o-y Remarks +12ppt High margins this quarter due to exceptional utilisation rate. Should fall going forward as the disposed Jaya Pioneer, which is on bareboat charter, would command higher margins than the fleet average. n.m. n.m.

Source: Company, OSK-DMG

See important disclosures at the end of this report

2

Jaya Holdings (JAYA SP) 15 August 2013

Figure 2: Review of full-year results Year ended 31 Mar Revenue

Cost of sales

FY12

FY13

82,180

y-o-y

201,750

(56,634) (159,676)

Remarks

145% Higher revenue as larger vessels commanding higher revenues were added to the fleet. Utilisation rate of 80% in FY13 was higher than the 70% in FY12. 182%

Gross profit

25,546

42,074

65% Gross margin fell due to losses on vessel sales.

Other income

14,320

22,985

General and administrative expenses

(7,951)

(9,886)

61% Jaya disposed of two operating vessels - Jaya Scout and Jaya Pioneer, which we see negatively affecting future recurring income. 24%

Other operating income / (expenses)

9,392

(5,353)

Other expenses Share of associates

0 (558)

0

-157% Mostly losses on vessel sales and reconfiguration costs on vessels in shipbuilding programme. n.m.

4

-101%

Finance costs

(5,126)

(5,192)

Profit before tax

35,623

44,632

8,188

1,424

Income tax expense Minority interest

0

-83%

(5)

PATAMI

43,811

Revenue Breakdown

FY12

OSV Chartering

69,619

105,681

Shipbuilding

46,051

12,561

96,069

FY13

Others

5% Core earnings of USD28.46m, netting out USD23m other income and USD5.4m other expenses were in line, just 3% shy of prior USD29.3m forecast. y-o-y

Remarks

52% High fleet utilisation of 80%. Going forward, revenue should fall as Jaya Scout and Jaya Pioneer have been disposed of, and only pick up from additions of vessels. n.a. Sale of 16,000bhp AHTS vessel accounts for USD73m of FY13 figure. n.a.

Total

82,180

PBT Breakdown

FY12

OSV Chartering

1% 25% Core pretax profit of USD27m and one-off gains of USD17.6m.

12,566

201,750 FY13 32,817

Shipbuilding

20,373

-5,499

Others

10,872

17,314

Total

43,811

44,632

PBT Margins

FY12

FY13

OSV Chartering

18%

31%

Shipbuilding

n.m.

n.m.

Others

n.m.

n.m.

Total

53%

22%

145% Increase largely due to sale of 16,000bhp AHTS vessel. y-o-y Remarks 161% We have reclassified disposal gains into Others. Core OSV earnings this year were about USD32.8m. -127% Losses from sale of 16,000bhp AHTS vessels and reconfiguration costs of other vessels in shipbuilding programme against gains in FY12. 59% Disposal gains on Jaya Scout and Jaya Pioneer in 4Q13. 2% y-o-y Remarks +13ppt Higher margins this year due to higher utilisation rate. Should fall going forward as the disposed Jaya Pioneer, which is on bareboat charter, would command higher margins than the fleet average. n.m. n.m.

Source: Company, OSK-DMG

See important disclosures at the end of this report

3

Jaya Holdings (JAYA SP) 15 August 2013

Figure 3: More delays in shipbuilding programme Type

Name

1 PSV

Jaya Vigilant

2 AHTS

Jaya Sovereign

3 PSV

Jaya Victory

4 AHTS

Jaya Majestic

5 PSV

Jaya Valiant

6 ROV

BHP/DWT

Delivery Delivery Additional Schedule Schedule Delay Today in May (mths) 4,950 Sep-13 Aug-13 1

Delay in May (mths) 2

Total Delay (mths) 3

16,000

Jan-14

Nov-13

2

0

3

3,500

Mar-14

Jan-14

2

0

2

12,070

Apr-14

May-14

-1

9

8

3,500

May-14

Apr-14

1

0

1

Jaya Privilege

10,450

Jun-15

Feb-15

4

2

5

7 ROV

Jaya Prestige

3,000

Oct-15

Nov-14

11

11

22

8 ROV

Jaya Pinnacle

3,000

Dec-15

Apr-15

8

0

9

Source: Company, OSK-DMG

Note: Jaya Privilege was formerly known as Jaya Progress. Note: Jaya Pinnacle was formerly designated as the 12,000bhp AHTS Jaya Marvel. Note: Management explains that the delays were part of efforts to reconfigure the vessels, which were ordered in 2007 and were no longer suitable for current needs. The newly-configured vessels may earn more income than via their original specifications, but this led to delays in delivery.

See important disclosures at the end of this report

4

Jaya Holdings (JAYA SP) 15 August 2013 Figure 4: Our ship-chartering revenue model for Jaya’s fleet

1 2 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

AHTS BHP DJM Fortune 3 4,750 Jaya Scout 4,750 Jaya Amandam 4,800 Jaya Amara 4,800 Jaya Amethyst 4,800 Jaya Treasure 2 5,150 Jaya Almighty 5,150 Jaya Seal 5,500 MDPL Conqueror 8,000 Jaya Cavalier 8,000 Jaya Concordia 8,000 MDPL Continental One 8,000 Jaya Confidence 8,000 Jaya Centurion 8,000 Jaya Coral 8,000 Jaya Chieftain 8,160 Jaya Crystal 8,000 Jaya Dauphin 10,800 Jaya Defender 10,800 Sea Hawk 1 12,069 Jaya Majestic 12,070

Maximum DayRate Daily per bhp (USD'000) 1.40 6.7 1.40 6.7 1.50 7.2 1.50 7.2 1.50 7.2 1.40 7.2 1.50 7.7 1.50 8.3 1.40 11.2 1.80 14.4 1.80 14.4 1.40 11.2 1.80 14.4 1.60 12.8 1.80 14.4 1.80 14.7 1.80 14.4 1.80 19.4 1.80 19.4 1.80 21.7 1.80 21.7

FY14 1995 1995 2160 2160 2160 2163 2318 2475 3360 4320 4320 3360 4320 3840 4320 4406 5820 5832 5832 6517 1651

Hire days 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 300 / 365 76 / 76

FY15 1982 1982 2146 2146 2146 2149 2302 2459 3338 4291 4291 3338 4291 3814 4291 4377 5791 5793 5793 6474 6474

Hire days 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365 298 / 365

DP NO DP NO DP DP-1 DP-1 DP-1 NO DP DP-1 DP-2 DP-2 DP-2 DP-2 DP-2 DP-2 DP-2 DP-2 DP-2 DP-2 DP-2 DP-2 DP-2 DP-2

AHT 21 Jaya Mermaid 3

BHP DayRate 5,150 1.30

6.7

2009

300 / 365

1995

298 / 365

DP NO DP

ROV Support 22 Jaya Pearl 27 Jaya Privilege 24 Jaya Pinnacle

BHP DayRate 6,000 24,000 6,000 24,000 6,000 24,000

24.0 24.0 24.0

8640 0 0

360 / 365 0/ 0 0/ 0

7680 696 0

320 / 365 29 / 29 0/ 0

DP DP-2 DP-2 DP-2

AW Barge 25 Jaya Installer 10

DWT DayRate 9,900 28,000

28.0

8960

320 / 365

8344

298 / 365

DP n.a.

MP Maintenance 26 Jaya Pride 23 Jaya Prestige

DWT DayRate 5,150 26,000 6,000 24,000

26.0 24.0

8320 0

320 / 365 0/ 0

8528 0

328 / 365 0/ 0

DP DP-2 DP-2

DWT DayRate 5,500 26,000 4,950 32,000 3,500 15,000 3,500 15,000

26.0 32.0 15.0 15.0

8710 7776 1605 690

335 243 107 46

365 320 365 365

DP DP-2 DP-2 DP-2 DP-2

DWT DayRate 9,900 1,000 9,000 1,000 9,000 0

1.0 1.0 0.0

365 300 0

Model Revenue (USD'000) Actual Revenue (USD'000) Utilisation Rate

120,704

28 29 30 31

PSV Jaya Valour Jaya Vigilant Jaya Victory Jaya Valiant

Flat Top Barges 32 Jaya 300 33 Jaya 301 34 Jaya 302

/ / / /

335 273 107 46

9490 10240 5475 5475

365 / 365 300 / 365 0 / 365

365 298 0

8472 / 10327 82%

136,271

/ / / /

365 365 365 365

365 / 365 298 / 365 0 / 365

DP n.a. n.a. n.a.

9311 / 11344 82%

Source: OSK-DMG estimates

Note: We have raised our utilisation rate assumption to 82% on the back of positive guidance. Note: Certain vessels have 0/0 hire days as they do not join the fleet that year. Jaya Prestige and Jaya Pinnacle will only join the fleet in FY16, while Jaya Privilege will only make a marginal contribution to FY15 income. Note: Jaya Pioneer and Jaya Scout have been removed from the vessels list following their disposals in 4QFY13. Note: There are two other unspecified vessels with options for their charterers to purchase them. If exercised, their disposals will have similar short-term positive effects on the bottomline but negative impact on longer term growth.

See important disclosures at the end of this report

5

Jaya Holdings (JAYA SP) 15 August 2013

Financial Exhibits Profit & Loss (USDm)

Jun-11

Jun-12

Jun-13

Jun-14F

Jun-15F

Total turnover

99

82

202

121

136

Cost of sales

(69)

(57)

(160)

(72)

(84)

Gross profit

30

26

42

49

53

Gen & admin expenses

(6)

(8)

(10)

(7)

(8)

Operating profit

23

18

32

42

45

Operating EBITDA

43

42

56

63

71

(20)

(24)

(23)

(21)

(26)

23

18

32

1

(1)

0

Other recurring income

59

24

18

4

4

Interest expense

(5)

(5)

(5)

(5)

(4) 45

Depreciation of fixed assets Operating EBIT Net income from investments

Pre-tax profit

42 -

78

36

45

41

Taxation

(13)

8

1

(1)

Minority interests

-

-

(0)

45 -

-

(1) -

Profit after tax & minorities

65

44

46

40

44

Reported net profit

65

44

46

40

44

Recurring net profit

65

44

46

40

44

Source: Company data, OSK-DMG estimates

Cash flow (USDm)

Jun-11

Jun-12

Jun-13

Jun-14F

Jun-15F

Operating profit

23

18

32

42

45

Depreciation & amortisation

20

24

23

21

26

Change in working capital

17

116

9

28

(62)

(25)

(18)

(2)

133

47

90

1

(1)

48

89

119 (121)

Other operating cash flow Operating cash flow Tax paid

(10)

(4)

Cash flow from operations

(12)

129

Capex

-

49 120 (1)

(97)

(186)

(8)

(175)

Other investing cash flow

94

66

59

75

Cash flow from investing activities

(3)

(119)

51

(100)

(121)

-

Dividends paid

-

-

(3)

(25)

(25)

Increase in debt

-

(12)

(132)

(15)

(16)

Other financing cash flow

(6)

(8)

(8)

(5)

(4)

Cash flow from financing activities

(6)

(19)

(144)

(44)

(45)

Cash at beginning of period

169

187

200

173

122

Total cash generated

(22)

(10)

(45)

(55)

(47)

(0)

0

-

-

-

156

118

Forex effects Implied cash at end of period

146

177

75

Source: Company data, OSK-DMG estimates

See important disclosures at the end of this report

6

Jaya Holdings (JAYA SP) 15 August 2013

Financial Exhibits Balance Sheet (USDm)

Jun-11

Jun-12

Jun-13

Jun-14F

Jun-15F

Total cash and equivalents

187

200

173

122

79

Inventories

222

167

95

59

10

Accounts receivable

33

17

31

20

22

Other current assets

30

20

9

9

9

Total current assets

471

405

308

210

120

Total investments Tangible fixed assets Intangible assets

6

0

314

420

-

-

-

411

490

585

0

0

-

-

-

Total non-current assets

320

420

411

490

585

Total assets

791

825

718

699

705

Short-term debt

12

50

12

12

12

Accounts payable

36

50

37

18

21

Other current liabilities

45

30

26

26

26

Total current liabilities

92

130

75

55

58

246

196

102

88

72

0

0

1

1

1

Total non-current liabilities

246

196

103

88

72

Total liabilities

338

327

178

144

131

Share capital

102

102

102

102

102

Retained earnings reserve

351

395

438

453

472

Total long-term debt Other liabilities

Other reserves Shareholders' equity Minority interests Other equity

(1) 453

1

(0)

(0)

(0)

498

540

556

575

0

0

0

0

0

(0)

(0)

0

0

0

Total equity

453

498

540

556

575

Total liabilities & equity

791

825

718

699

705

Source: Company data, OSK-DMG estimates

Key Ratios (USD)

Jun-11

Jun-12

Jun-13

Jun-14F

Jun-15F

Revenue growth (%)

(65.7)

(16.9)

145.5

(40.2)

12.9

Operating profit growth (%)

(68.9)

(24.2)

82.9

29.5

8.0

Net profit growth (%)

(22.3)

(32.6)

5.1

(13.1)

9.9

EPS growth (%)

(22.3)

(32.6)

5.1

(13.1)

9.9

Bv per share growth (%)

17.3

10.0

8.5

2.8

3.4

Operating margin (%)

23.5

21.4

16.0

34.5

33.0

Net profit margin (%)

65.8

53.3

22.8

33.2

32.3

Return on average assets (%)

8.1

5.4

6.0

5.6

6.3

Return on average equity (%)

15.5

9.2

8.9

7.3

7.8

Net debt to equity (%)

15.7

9.2

(10.9)

(4.1)

0.8

DPS

0.00

0.00

0.03

0.03

0.04

(0.02)

0.17

0.06

0.12

0.15

Recurrent cash flow per share Source: Company data, OSK-DMG estimates

See important disclosures at the end of this report

7

Jaya Holdings (JAYA SP) 15 August 2013

SWOT Analysis  Young, modern fleet of offshore support vessels (OSVs)

 Indonesian and Malaysian cabotage may contribute to lower charter rates outside these countries

 Its Singapore yard has a track record building anchor handling tug supply (AHTS) vessels of up to 16,000bhp

 Lacklustre results from peers may spur price competition to secure contracts

 Strong industry backdrop with increasing exploration and production (E&P) expenditure budgets in the Asean region

 Chinese yards delivering improving quality while still keeping prices lower

 Large drilling rig orderbook and positive sentiment on rig order flows contribute to increasing enduser demand

 High cost of vessels ordered in the 2007 boom  Under-utilised yards a drag on performance

P/E (x) vs EPS growth

P/BV (x) vs ROAE

10.0

60%

0.90

20%

9.0

50%

0.80

18%

8.0

40%

0.70

16%

7.0

30%

0.60

13%

6.0

20%

0.50

11%

5.0

10% 0.40

9%

0.30

7%

4.0

0%

0.00

0%

P/E (x) (lhs)

EPS growth (rhs)

Source: Company data, OSK-DMG estimates

P/B (x) (lhs)

Jan-14

Jan-15

-40%

Jan-13

2%

0.0

Jan-12

0.10

Jan-11

-30%

Jan-15

4%

1.0

Jan-14

0.20

Jan-13

-20%

Jan-12

-10%

2.0

Jan-11

3.0

Return on average equity (rhs)

Source: Company data, OSK-DMG estimates

Company Profile Jaya Holdings is an owner and charterer of offshore support vessels (OSVs). It also owns and operates two shipyards in which it is building vessels for its own fleet.

See important disclosures at the end of this report

8

Jaya Holdings (JAYA SP) 15 August 2013

Recommendation Chart Price Close 0.55 0.53

Recommendations & Target Price

0.55

1.4

NR

1.6

0.53

1.2 1.0 0.8 0.6 0.4 0.2 Buy 0.0 Aug-08

Neutral

Sell

Nov-09

Trading Buy

Feb-11

Take Profit

Not Rated

Jun-12

Source: OSK-DMG estimates, Bloomberg Date

Recommendation

2013-06-14

Sell

Target Price Price 0.53

0.58

2013-06-07

Sell

0.53

0.62

2013-05-20

Sell

0.55

0.61

2013-05-16

Sell

0.55

0.63

2013-05-08

Sell

0.55

0.65

Source: OSK-DMG estimates, Bloomberg

See important disclosures at the end of this report

9

RHB Guide to Investment Ratings DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share may10% exceed over 12 themonths next 3 months, however longer-term outlook remains uncertain Buy: Share price mayprice exceed over15% the next Neutral: Buy: ShareShare price price may fall within the 15% rangeover of +/the next 12 months Trading may exceed the10% nextover 3 months, however longer-term outlook remains uncertain Take Profit: Target been attained. accumulate lower Neutral: Share priceprice may has fall within the rangeLook of +/-to10% over theatnext 12 levels months Sell: may fall has by more 10% over next 12 months Take Share Profit:price Target price beenthan attained. 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