STEng – OSK DMG

Marine Business To Provide Stability

Following a series of positive announcements from the company, we reaffirm our confidence in STE continuing to deliver. Apart from the healthy project backlog of SGD12.5bn as of 3Q13, the company has also generated more stable income by expanding its maintenance services segment as well as investing in the aircraft leasing and ferry service businesses. Maintain BUY, with a DCF-based TP of SGD4.56.

Orderbook to last till end-2015. ST Marine announced that it has secured new orders worth about SGD446m in 4Q13. This is on top of the USD350m worth of contracts to build two units of container roll-on/roll-off (Ropax) vessels which it secured earlier. These contracts largely involve logistics management, maintenance, major upgrade and conversion works for the offshore industries, contracted to be carried out at the Singapore Tuas yard. Of more significance is that the company’s environmental business based in China was awarded a contract to design a niche Pneumatic Waste Collection System for high-rise commercial and residential projects in Guangzhou. As such, we believe that STE’s marine business focused on customised and high engineering content work is supported by a robust orderbook that will last till end-2015.

More recurring income stream. ST Marine also announced a week ago that it will invest in a 10% stake in a newly established cruise ferry service business, Nova Star Cruises Limited, which operates between Yarmouth in the US and Portland in Canada, with Quest Navigation holding the remaining 90% stake. The investment is aimed at providing a more stable income stream as well as downstream support to the group’s shipbuilding business, as it will bareboat charter ST Marine’s Ropax vessel for the next three years, with an option to extend up to seven years. Elsewhere, ST Marine also recently equipped its 140-hectare Mississippi yard with new ship repair capability, thus opening up a geographically-diversified stream of stable maintenance revenue.

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