Technics O&G

Technics O&G: DMG initiate coverage with a Buy rating and TP of $1.28. House note that co has entered into an agreement to acquire an existing private yard in Vietnam for a maximum consideration of S$10m that will double their revenue capacity and believe the yard will be strategically important to secure more work in Vietnam. Technics’ business model requires very limited capex and generates strong operating cash flow. Balance sheet is healthy with a net gearing of 0.28x. In FY10 and FY11, the company paid 10.5S¢ and 12.0S¢ divs respectively, and mgt is guiding for 8S¢ dividend payout for FY12F. This translates into a yield of 8.6%. Earnings outlook: +12.6% net profit CAGR over FY11-14F. The earnings growth is largely driven by strong rev growth of 24% CAGR over FY11-14F and house expect blended EBITDA margins to stay strong at around 18.0-20.5%. Use a target P/E of 12x on blended FY12/13F EPS, at the top of its historical range, as we expect P/E valuation to expand on stronger earnings, higher recognition by the market (stock is under-researched) and spin-off of Norr Offshore Group.