Company Background

Established in 1976 by Mr Joseph Foo, Jason Marine (Jason) provided repair services for maritime electronic equipment. It moved on to represent major brands and distribute their marine equipment. From 2000 onwards, it took the next step to become a system integrator of communications and navigation systems for the marine offshore oil and gas vessels. The business has extended beyond Singapore, into Malaysia, Thailand, South Korea and China. It has been listed on the SGX since October 2009.

1. Trading at net cash. Jason trades at a net cash of S$14mn. System integrators require minimal capex. Cash is mainly to cover staff cost and working capital. Over the past 10 years, free cash flow accumulated to S$14mn, though the slowdown in oil and gas orders in the past few years caused operating cash-flows to turn negative.

2. Cycle improving gradually. Revenue and profits peaked in FY09. Revenue has since declined to a low this year. Apart from weaker orders, earnings have been hit by bad debt provisions, losses from associates and fair value loss on derivative financial instruments. The ordering cycle appears to be turning, albeit gradually. Customer enquiries are improving and order books for Singapore yards are starting to recover.

3. Written off problematic investments. Recent earnings were hurt by write-downs or losses from two major investments. The first was e-Marine Global Inc, formerly called e-MLX. A maritime ICT provider, eMarine trades on the US OTC Pink Market. Jason has invested around S$1.2mn since 2008. As at end Mar 2019, its stake was 6%. This is recorded as a financial asset on its balance sheet at S$3.5mn. Its second investment was Sense Infosys (SIS), a maritime and security data analytics startup. The investment was in March 2015 and Jason has a 24.4% stake in SIS. SIS has been placed under voluntary creditor liquidation in April 2019. Jason has written down the value of this associate company to nil. Including loans, its investment in SIS totals around S$2.1mn.
4.  

In terms of valuation, the stock trades at around 0.5x price to book. The 10-year historical average is 0.7x, with a high of 1.3x and low of 0.35x, on a monthly basis.

Revenue

Jason’s revenue is broken down into 3 segments:

1. Sale of goods: project-based installation work. The equipment are essentially communications inside and outside the vessel. External communications to shore or between vessels will include radio and satellite communications. Meanwhile, internal communications will be products such as firewall, WiFI, cabin to cabin communication, CCTV, entertainment systems, etc. The project size can reach as large as S$10mn especially for vessels that carry many personnel, such as accommodation vessels and FPSOs.

Apart from communications, Jason sells navigation systems such as radar, compass and collision avoidance systems. It allows ships to move from one destination to another in the shortest and safest manner.

To sell these equipment, Jason has to secure the rights from the brand owners. Some of the principals that Jason represent are:

• • Raytheon Anschutz: Gyrocompasses (Figure 1), autopilots, steering control systems, magnetic compass.
  • Cobham Group (Seatel and Thrane & Thrane merger): Marine stabilized antenna systems for satellite communications, satellite television-at-sea, broadband-at-sea and voice data terminals.
  • Jotron: Air communication systems.
  • Navico: Gyrocompasses, bearing repeaters, autopilots, radars, VHF radio telephone.

Securing 1 or 2 principals is not sufficient. As a system integrator, the customer’s request for quotes will contain many sub-packages or solutions. This will require Jason to represent a suite of brands to provide a complete solution.

The two industries which Jason services are:

Marine or shipping – Vessels under this category include tankers, bulk carriers, containers, workboats and fishing vessels. Because the size of the contracts are smaller, the yard will decide which SI to use. The shipowner can have some influence.

Offshore oil and gas – Vessels include oil platforms, semi-subs, FPSO and OSV. The contracts are large, the EPC company assigned to build the vessel will decide on the SI to deploy.

Between both categories, marine jobs are small while oil and gas contract can range between S$1mn to S$3mn.

2. Rendering of services: Relates to equipment leasing and maintenance and support services including repair works, troubleshooting, commissioning, radio survey and annual performance tests. Equipment leasing refers mainly to leasing of Electronic Chart Display and Information System (ECIDS – Figure 4). Such charts need to be updated periodically. Some customers may prefer to rent instead of a large upfront purchase for equipment. Maintenance and repair work are ad hoc in nature and not scheduled under long-term contracts.

3. Airtime revenue: Jason performs the role similar to mobile operators (more akin to MVNO) and sell airtime for satellite services. When out in the ocean, vessels need to communicate to shore or other vessels via satellite. Jason will work with Inmarsat, Intelsat, Iridium and other principals to provide such airtime services to customers. Pricing is on pay on usage or subscription basis. To compete effectively, Jason needs scale to secure the cheapest airtime cost.

Cost

Large cost components are equipment and labour. Margins depend on availability of contract and competition. Competition has been intense as the number of jobs in the marketplace has shrunk. Cost advantage from equipment only if purchase in bulk. System integrators only purchase equipment when there are projects that have been secured.

The closure of several major oil and gas operators over the past few years resulted in an increase in bad debt provision. Another major bad debt provision was the S$851,000 loan to associate – SIS, which is now under liquidation.

Another volatile cost item is foreign exchange. Significant amount of Jason’s revenue are billed in foreign currencies but reporting currency is Singapore dollar. This leads to occasional foreign exchange impact on net profit from the trade debtors and cash holdings. In FY19, there was a S$504,000 foreign exchange gain (in other income).

Cash-flow

A strength of Jason business model is the minimal capital expenditure required in the business. Over the past 10 years, total capital expenditure has only totalled S$4.6mn. Most of the cash is utilised in working capital and staff cost. Total FCF generated the past 10 years has been S$14mn.

Balance Sheet

Assets: Of the S$36mn total assets, almost 40% is cash (S$14mn), 33% is trade and other receivables, 13% is inventories and 11% or S$3.9mn is financial assets. Large part of trade receivables are contract assets, where work has been completed, recognised as revenue but not billed. Actual receivables turnover within 70 days. 

Liabilities: Jason total liabilities stand at S$9.5mn, almost all are trade and other payables.

Competitors

Some of Jason competitors include Omega integration, CSE transtel, Radio Holland and Semco Maritime.

Customers

Jason major customers include Keppel Offshore and Marine, Sembcorp Marine, Cosco Corp and Modec.

Investment Highlights

1. Trading at net cash. Jason trades at its net cash of S$14mn. System integrators require minimal capex. Cash is mainly to cover staff cost and working capital. Over the past 10 years, free cash flow accumulated to S$14mn, though the slowdown in oil and gas orders the past few years caused operating cash-flows to turn negative.

2. Cycle improving gradually. Revenue and profits peaked in FY09. Revenue has since declined to a low this year. Apart from weaker orders, earnings have been hit by bad debt provisions, losses from associates and fair value loss on derivative financial instruments. The ordering cycle appears to be turning, albeit gradually. Customer enquiries are improving and order books for Singapore yards are starting to recover. Order books at the Singapore yards are beginning to stabilise and this should be positive for Jason revenues. As per Figure 5, Jason revenues move in-line with yard order books.

3. Written off problematic investments. Recent earnings were hurt by write-downs or losses from two major investments. The first was eMarine Global Inc, formerly called e-MLX. A maritime ICT provider, eMarine trades on the US OTC Pink Market. Jason has invested around S$1.2mn since 2008. As at end Mar 2019, its stake was 6%. This is recorded as a financial asset on its balance sheet at S$3.5mn. Its second investment was Sense Infosys (SIS), a maritime and security data analytics startup. The investment was in March 2015 and Jason has a 24.4% stake in SIS. SIS has been placed under voluntary creditor liquidation in April 2019. Jason has already written down the value of this associate company to nil. Including loans, its investment in SIS totals around S$2.1mn.

Valuations

In terms of valuation, the stock trades at around 0.5x price to book. The 10-year historical average is 0.7x, with a high of 1.3x and low of 0.35x, on a monthly basis (Figure 6).