LIM & TAN Securities initiated coverage on marine logistics company Mermaid Maritime with a “buy” call and a target price of S$0.30 on Wednesday (Jul 3).
The target price implies a price-to-earnings (PE) ratio of 12.5 times, representing a 15 per cent discount to its peers’ PE estimates of 14.7 times.
The initiation came as the brokerage expects further increases in revenue to significantly contribute to Mermaid’s bottom line, said analyst Nicholas Yon.
He added that the company may distribute a surprise dividend, which can be “well supported” by its current operating cash flow.
In Yon’s view, Mermaid is likely to benefit from the rising demand for decommissioning projects as numerous oil wells in the region are expected to cease production in the next decade.
Mermaid provides subsea services ranging from inspection, repair and maintenance to cable laying.
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Noting that decommissioning projects have a lifespan of about one year, Yon expects the company to turn over most of its current projects. Excluding further contract wins, he projects that 60 to 65 per cent of Mermaid’s current order book will be recognised in financial year 2024.
Therefore, he estimates that the company will book revenues of about US$450 to US$500 million, with decommissioning projects making up the bulk of its top line.
With decommissioning projects set to grow, Mermaid is also primed to secure more contracts to replenish its order book, said Yon.
“We expect Mermaid’s win momentum to continue and the order book to cross S$1 billion, giving further visibility beyond FY2024,” he added.
Yon also highlighted that the company’s bottom line could be buoyed by elevated charter rates as he expects new contracts to reflect the higher market rates.
The analyst also viewed Mermaid’s valuations as “undemanding” despite gains in share price. The stock currently trades at an eight times forward PE.
“There is abundant untapped potential poised to unfold beyond FY2024, driven by the ongoing supply-demand imbalance in the oil and gas market, which is projected to persist well into 2030,” he said.
Shares of Mermaid Maritime were trading flat at S$0.20 as at 11.34 am on Thursday.
