Jaya Holdings: Seeking debt re-structuring

Jaya is seeking debt re-structuring with its creditors. Jaya indicated that the weak industry outlook has resulted in some bankers expressing their reluctance to roll-over and/or extend existing credit facilities granted to the group. Given the slower than usual disposal of vessels and the global credit crunch, Jaya is finding it increasingly difficult to generate sufficient internal cash flow to self-fund its AHTS newbuild capital commitments of more than S$700m as of end June 2008.

Jaya is seeking to restructure its debts with creditors, and has appointed nTan Corporate Advisory Pte Ltd as its independent financial advisor to the group. The scope of advisory works include assisting Jaya to review and develop strategic options, and to better rationalize and optimise its operational activities, financial arrangements and capital structure.

Jaya and its advisors will seek the support of bankers for a standstill of repayment of amounts owing to them, pending a consensual restructuring of the group's operational activities and financial arrangements. Meanwhile, Jaya will still operate its business as per normal.

Jaya's net gearing is projected to reach 1.4x by end FY10 (FYE June), and may even go to as high as 2.0x should there be only two vessel sales in the financial year. Indeed, we had recently reiterated that Jaya’s net gearing could step up to 0.92x by end FY09 (vs. 0.66x currently), after taking into account its expected vessel sales and charter income.

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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.

Jaya Holdings – Takeover exercise by Nautical Offshore at $0.70?

Jaya Holdings Ltd., a vessel-chartering company majority owned by Affinity Group’s Nautical Offshore Services, soared to its highest level in seven months amid hopes charter rates will remain firm.

Jaya has broken above its KRL at $0.58; more than 61m shares were traded yesterday suggesting that momentum is in place. We believe Jaya has upside to $0.72; recommend buy with stop-loss below $0.57.

Market grapevine moots another theory that Nautical Offshore, who is Jaya’s 54.8% majority shareholder, may be launching another takeover exercise for Jaya. Nautical Offshore is a wholly owned unit of U.S. based Affinity Group. Considering Nautical’s last $1.45/share general offer for Jaya in 2007, the huge discount implied in Jaya’s last traded price of $0.60/share does open up this possibility. Taking a reasonable test, a $0.70 takeover price would imply valuations of 6x PE (2009E) and ~1.3x P/B. As a comparison, this compares well with ASL Marine, which we estimate to be valued at 3.2x PE (2009E) and 1x P/B.