Amedeo Resources' (LON:AMED) joint venture with one of the top five Chinese shipbuilders provides a "transformational" growth opportunity, reckons broker Daniel Stewart, which has started covering the stock.
The firm invested US$15.3 mln into the new venture - YZJOE Singapore - which is a collaboration with major Chinese shipbuilding group, Yangzijiang Shipbuilding (YZJ) - a group with a market cap of US$3.5 billion.
Amedeo has a 46.45% stake in the venture.
YZJOE Singapore has in turn a 40% share of YZJOE China - a new Chinese offshore rig building yard - in which Amedeo has an indirect stake of 18.6%.
Within months of the joint venture being struck the yard secured a US$170 million order to construct and deliver one Le Tourneau offshore jack-up oil rig.
YZJOE is also in the process of building its own purpose-built rig-building yard - the Taicang yard, due to be completed in the middle of this year. Once up and running, it will have capacity to produce up to 10 rigs at the same time as other offshore vessels.
The order is currently on track for delivery in mid-2015 with the main hull nearing completion, Daniel Stewart analyst Simon Willis said.
The analyst noted that following the Macondo well blowout in the Gulf of Mexico in 2010, the offshore rig building sector has seen strong demand.
"With almost 50% of the world’s total current fleet of jack-up rigs more than 25 years old, there has been a surge in new orders," notes Wills.
"Amedeo believes demand for newly designed higher specification rigs to enable deeper and more efficient drilling will be underpinned by the phasing out of the existing stock of rigs over the next few years.
"The group holds the view that, based on the current stock and new rig builds in the pipeline, there could be an under supply by almost 200 jack-up rigs by 2020."
Wills notes this implies a replacement rate of around 10% per year through to 2020, while overall, growth in the offshore sectors is expected to be 15-35% per year. over the next 10-15 years.
The broker has initiated on the stock with a 'buy' recommendation and 2p price target - a 263% increase on the current share price of 0.55p.