Swiber

Kim Eng on 3 Apr 2012

Background: Swiber is a provider of integrated construction and support services to the offshore oil and gas industry. It is involved mainly in the engineering, procurement, construction and installation (EPCI) segment, as well as marine support services, across the Asia Pacific and the Middle East, primarily in shallow water. It currently operates a fleet of 12 construction vessels (mostly pipelayers) and 41 offshore vessels (AHTS and support barges). It also holds a 53.3% stake in Kreuz Holdings, which provides diving support for the offshore industry.

Recent development: Swiber recently bagged an offshore EPCI pipelaying contract in the Gulf of Mexico (GoM) in collaboration with Spanish yard Dragodos. The US$273m order has allowed Swiber to penetrate the GoM region, which could open up more opportunities in this lucrative market.

Excellent prospects for its segment. With the latest contract win, Swiber’s orderbook stands at around a record US$1.2b. Going forward, the company should be able to leverage on its execution track record to secure significantly more jobs in the booming offshore market, especially in ASEAN. Its specialisation in jobs of 100-200m water depth still has good prospects, without having to make costly investments to enter the deepwater segment.

Enough capacity on hand. Swiber reckons that its current fleet is large enough to handle the influx of business, and can take on annual revenue of up to US$1.5b, versus its FY11 reported revenue of US$655m. Utilisation of its fleet stands at about 70%, but revenue can be ramped up due to the higher construction content of new orders. This also means that margins are expected to be thinner than from pure services. EPCI gross margins run at about 12-15%, while services margins are at over 20%.

Cash may still be needed. While Swiber does not foresee the need for more vessels just yet, several are on sale-and-leaseback with leases expiring soon. Given the high leasing costs (between 10-15% pa), the company may buy back some of these vessels. We estimate that it may require US$300-400m, which
may be financed by a combination of borrowings or new equity. Its net gearing stands at 0.72x with
US$160m cash in hand, but some of this cash may also be needed to finance its ongoing jobs.

Prospects good, valuations reasonable. Consensus forecasts indicate that Swiber should grow net earnings by 34% in FY12, through its record orderbook. With the stock price up 24% YTD, it may gain further traction on more wins, as we understand that the company is bidding for some US$3b worth of new contracts. However, further fundraising and its gearing may be an overhang, especially since it recently raised some US$50m via 101.1m new shares.