ST Engrg

ST Engrg: its US shipyard, VT Halter Marine, has secured a $441m (US$353m) contract from Hornbeck Offshore Services to build 8 high-spec offshore supply vessels (OSVs). Construction of the first vessel is expected to start in 1Q12 with delivery of the first and eighth vessels scheduled btwn Oct ‘13 and Sep ‘14 rptvly. These DP2 capable OSVs would be based on VT Halter Marine's Super 320 design, have ~20,900 bbls of liquid mud carrying capability, 1102 sm of deck area and a fire-fighting class notation.

The contract also includes options for up to 24 additional identical vessels, first of which is required to be exercised by Sep ‘12. Assuming these options have the same dollar value per vessel as the S$441m contract, they could potentially amount to S$1.3b in future orders if exercised.

Deutsche views the positively, as it is the single largest win by STE's marine division in the last few years and would broaden the group's revenue base. Notes, this would further establishe STE in the lucrative O&M sector which is showing sound long term industry fundamentals.
STE currently trades at 15.6x FY12E P/E (lower end of historical band) and offers a dividend yield of 5.8%. Overall, operations should remain relatively stable despite the global macro uncertainties, with ~40% of STE's sales coming from the military and another 10-15% from govt-related contracts. The group has an order book of $11b as of end-Sep ’11, vs FY10 sales of $6b.
The house has a Buy rating with TP $3.20.