Jaya Holdings: A better than expected performance

3Q09 results ahead of expectations. Jaya reported 3Q09 net profit of S$22.2m (-43% y-o-y), which included a net forex loss of S$13.4m. Excluding this, recurring net profit would be S$35.6m (+35% y-o-y), above expectations. Group revenue of S$70.1m (-9% y-o-y, +86% q-o-q) improved significantly q-o-q as the shipbuilding division saw a higher rate of revenue recognition on vessels under construction, but was offset slightly by lower contributions from the chartering division which reported a reduced fleet size, but higher day charter rates of S$11,378 (+36% y-o-y). Jaya also posted markedly reduced admin costs of S$0.2m, down 91% y-o-y, which partially buoyed operating margins of 55.8% (+12.6ppt y-o-y). In-linewith its newbuild program, net gearing edged up marginally to 0.66x, from 0.65x as of end 2008.

Adjusting FY09 net profit estimate to S$75.4m, to account for higher thanexpected shipbuilding revenue, improved gross margins and lower operating costs. No change to our FY10 numbers.

Upgrade to HOLD, TP S$0.54. We are raising Jaya's fair value to S$0.54, based on 1.0x FY09F P/BV (prev 0.45x) as we adjust for lower equity risk premium. We are encouraged by Jaya's ability to manage its operating costs well, and its ability to dispose vessels despite the persistent challenging macro conditions. In 9MFY09, the group has received disposal proceeds of c. S$142m which will help towards reducing balance sheet strain. Forex and translation losses should also start to taper off as we understand that the majority of the hedges contracted previously have matured. Hence, we upgrade Jaya to HOLD from Fully Valued.

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