Stx Osv won a new contract from Iceman AS

FAIR VALUE: S$2.000

Won new contract for a large AHTS: STX OSV announced yesterday that it has won a new contract from Iceman AS for one AH-12 vessel for delivery in mid-2013.

 Very large, complex vessel: The AH-12 design is STX OSV’s largest AHTS design, with bollard pull of 300—397tons on combined 20,000—36,000bhp engines, according to previous orders in this series. The strongest AHTS in the world, the KL Saltfjord delivered by STX OSV in 2011, is of this design. The standard design also incorporates a hanger for a Remotely-Operated Vehicle (ROV) for subsea work.

 We estimate this contract at

NOK 750m: Past orders for this design have ranged from NOK 750m—850m, depending on the specifications of the vessel. We have assumed the lower band for conservativeness.

 Of which 60%—75% to be recognized this year: Good news! Given the delivery schedule, based on our S-curve revenue recognition model (see pages 2—3), we estimate that a good 60%-75% of the contract value will be recognized this year. This is an important shot in the arm for 2012F revenues, exactly what the doctor ordered.

 78% of 2012F revenue secured: This brings STX OSV’s “confirmed” revenues (i.e. in the order book), according to our model, to NOK 9.0b, out of our NOK 11.5b revenue forecast. STX OSV now looks in much better form to meet our forecast, if the current pace of order wins continues.

 So far, NOK 3.2b of NOK 6b required in 1H won: This marks a significant improvement from NOK 2.4b in our note early last week. STX OSV needs to win another NOK 2.8b of orders, preferably for early delivery in 2013. The “quick” delivery of this particular order also makes us sit up and take notice — STX OSV appears to be accelerating its shipbuilding speed by as much as 20%.

 Maintain Buy with FV $2.000: We continue to value STX OSV at 11x FY12F EPS for a FV of $2.000. The realized risk of the market jitters has caused STX OSV to give up 5%-9% of its recent $1.82 high, validating our long-standing caveat. Our FV presumes sufficient contracts won in the near future for STX OSV to meet our revenue forecast, as well as a fairly buoyant market. Conservative investors should stay away; this is now a stock for those with a higher risk appetite desiring a good short-term gain with higher volatility.