The South East Asia Marine Engineering & Construction Company is a multinational company. It is an arm of TECHNIP of France, which is into engineering and construction for under water projects. It is one of the leading companies in the world. South East Asia Marine is a 78% subsidiary here in India. The company owns four multi support vessels, which are used in these kinds of activities.
Right now South East Asia Marine is not undertaking these kind of projects, but it is charter hiring these multi support vessels to other companies. With charter rates being very strong, the performance of the company in the current year is quite strong.
The operating margins of the company in the current year are already up and they are close to 60%, whereas the net profit margins are close to 50%. Its year-end is December and for the half-year the company's profits are around Rs 32 crore on equity of Rs 33 crore.
The second half should be equally good and therefore the EPS for the year-end December 2006 is likely to be close to around Rs 18-Rs 20.
The company has acquired one more vessel in the current year in June, which is yet to be deployed. It could be deployed in the fourth quarter. So in the fourth quarter the earnings or the profits could also increase.
Plus for the next year the revenue and profits will be much better compared to this year due to the rising charter higher prices as well as addition of one ship to its portfolio. The company is a zero debt company, so it is available at a very reasonable valuation.
Q: On Rs 20 EPS would you give it about 8.5 times PE one year forward? How would that stalk up with the other players in the sector and what sort of a price target are you watching out for this one?
A: The company should have at least a PE of 15 if not more. Going by that and going by the fact that for December '06 its earnings should be close to Rs 18. After one year in December '07 the earnings should be close to Rs 22-Rs 24. So in that case the prices should be close to Rs 300 or more than that.
Q: ABC Bearings is another counter that you like. Apparently you are looking at their second half earnings for '07 to be very strong. What are the drivers essentially that you would be watching out for this one and a target price?
A: ABC Bearings is actually making the taper rollers and cylindrical bearings for commercial vehicles, heavy commercial vehicles and the tractor industry. Of late, the demand in this segment is improving significantly.
The company is doing very well. Even last year the company did very well. Its EPS was around Rs 13. In the current year, in the first quarter the company's performance was significantly better.
For the full year, we expect the net profit to be close to Rs 22-Rs24 crore given the earnings of around Rs 20-Rs 22. So at the current price of Rs 150 it is still available close to 7-8 P/E. Going by the outlook for the auto industry and engineering industry the outlook and the potential for the bearing industry is very good and therefore this stock, which is available at 7-8 P/E is very attractive
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