We value EAT at MYR0.75, using DCF valuation  (WACC: 7%). This gives an implied FY15 P/E and P/BV of 12.8x and 1.3x respectively. The tanker shipping  and  tugboat  provider  has  clear  earnings  visibility  with  an orderbook size of MYR1.28bn, equivalent to 10.6x its FY13 revenue. Its expanding  fleet  and  lower  charter-in  costs  ahead  means  recurring earnings CAGR for FY13-16 is projected at 20.3%.  
 
Background. EA Technique (EAT) is a provider of tanker shipping, and tugboat  and  mooring  services  at  several  ports  in  Malaysia.  With  a  fleet count  of  6  product  tankers,  the  company  is  ranked as  the  fourth-largest product  tanker  operator  locally  with  an  8%  market  share.  It  also  owns two  fast  crew  boats  (for  offshore  support),  a  floating  storage  unit  (FSU) and  two  liquefied  petroleum  gas  (LPG)  tankers.  In  its  tugboat  and mooring division, its fleet comprises 16 tugboats and five mooring boats.    Mid-  to  long-term  revenue  visibility.  As  at  31  Oct,  EAT’s  orderbook visibility  stood  at  MYR830.7m  with  an  optional  extension  period  (an additional  1-5  years  contract  extension)  amounting  up  to  MYR452m. Combining both existing orderbook and its extensions, EAT’s orderbook to FY13 revenue ratio amounts to 10.6x, thus ensuring revenue visibility over the mid to longer term.

Potential  contract  wins  from  the  Pengerang  Integrated  Petroleum Complex (PIPC). We potentially see demand for domestic tankers being propelled  by  the  upcoming  development  of  the  PIPC,  which  is slated to commence  by  2019.  As  EAT  is  already  providing  towage  and  mooring services  for  the  current  liquefied  natural  gas  (LNG)  Regasification Terminal off Sungai Udang Port, we think there is a high chance for it to secure similar contracts for the Pengerang Regasification Terminal.

IPO  to  raise  MYR74.1m.  With  an  offering  size  of  114m  shares,  EAT intends to raise MYR74.1m at the IPO to fund capex, working capital and debt  repayments.  In  addition,  there  will  be  an  offer  for  sale  of  15m shares by the promoters.

Valuation. We  like  EAT’s strong earnings visibility  and  3-year  earnings  FY13-16  CAGR  of  20.3%,  banking  on  the  potential  job  wins  from  the upcoming PIPC. Given its long term charter agreements, we value EAT at  MYR0.75  based  on  DCF  (7%  WACC).  This  gives  an  implied  FY15F P/E of 12.8x, EV/EBITDA of 8.6x and P/BV of 1.3x, in line with offshore support  vessel  (OSV)/tanker  players  listed  in  Malaysia  with  similar charter duration profile. 

IPO Structure 

At MYR0.65, with an offering size of 114m shares representing approximately 22.6% of the enlarged issued and paid-up capital, EAT intends to raise MYR74.1m at its IPO to  fund  for  its  capex,  working  capital  and  borrowing  repayments.  The  exercise  also entails an offer for sale of a further 15m shares owned by CEO Dato’ Abdul Hak Md 
Amin (5.1m shares) and wife Datin Hamidah Omar (9.9m shares). 

Company Profile

Background.  EAT  is  principally  an  owner  and  operator  of  marine  vessels.  It  has been  in  business  since  1993  and  its  business  scope  can  be  broken  down  into  two core segments:  

i.  Marine  transportation  and  offshore  storage  operations.  This  division  is involved  in  downstream  activities,  specifically  in  the  charter  of  various tankers  for  the  transportation  and  offshore  storage  of  oil  &  gas  (O&G) products.  In  its  fleet  are  six  product  tankers  –  tankers  that  carry  refined petroleum products, two fast crew boats for offshore support, a FSU and two (Liquefied    Petroleum  Gas)  LPG  tankers.   EAT’s product tankers and LPG tankers transport oil around ASEAN coastal waters. These include Malaysia, Singapore,  Indonesia  and  Vietnam.  Meanwhile  its  FSU  and  OSVs  operate around Malaysian coastal waters.  

ii.  Port marine services.  This division provides port marine services such as towing, mooring and dockside mooring for vessels at various petrochemical, bulk and containerised ports in Malaysia. The list of ports that EAT provides services in are: i) Kertih Port (O&G), ii) Sungai Udang Port (O&G), iii) LNG Regasification  Terminal  off  Sungai  Udang  Port  (O&G),  and  iv)  Northport (bulk and containerised). The division’s fleet comprises 16 tugboats and five mooring boats.

Shipbuilding, ship repair and minor fabrication. Set up in 2008, this division is not a significant contributor to revenue but acts as a supporting arm for  EAT’s two core divisions above, thus allowing for cost synergies. Located at Hutan Melintang, Perak, the company’s shipyard fronts a 250m coast line with a quayside water depth of 4m at low tide and up to 7m at high tide. The shipyard has a dead weight tonnage (DWT) capacity of up to 10,000DWT, or six tugboats at one time. It has a solid track record in constructing seven vessels comprising one product tanker,  four tugboats and two mooring boats.

Source: RHB