Vard Holdings Limited (VARD)’s 2Q13 results came in below ours and the street’s expectations, despite issuing a profit warning earlier. The group reported a net loss of NOK20m for 2Q, bringing its 1H13 net profit to NOK168m – just 28% and 23% of ours and the consensus FY13F estimate. The poor performance was mainly due to operational challenges in its Niteroi and Promar yards in Brazil, which would likely need more time to stabilize. Its order-book also declined by about 11% to NOK14.0b. Downgrade from Hold to SELL with lower FV of S$0.80 (previously S$0.93).
2Q results below expectations
Vard Holdings Limited (VARD)’s 2Q13 results came in below ours and the street’s expectations, despite issuing a profit warning earlier. The group reported a net loss of NOK20m for 2Q, bringing its 1H13 net profit to NOK168m – just 28% and 23% of ours and the consensus FY13F estimate. EBITDA margin fell to 4.1% in 2Q13 from 13.8% in the year-ago period. The poor performance was mainly due to operational challenges in its Niteroi and Promar yards in Brazil.
Brazil needs more time to stabilize
According to the management, the business environment in Brazil remains very difficult, characterized by high personnel turnover and tightness in the subcontracting market. The outsourcing of a hull construction worsened the already overloaded situation in Niteroi. This resulted in further delays and cost over-runs. Although the group had implemented several mitigating measures, further deterioration in the future cannot be ruled out. At its new Promar yard, pre-operational expenses and start-up costs were higher than expected and had to be revised upwards.
Orderbook declined to NOK14b
In terms of order-book development in 2Q, VARD secured three new contracts (1 OSV, 1 PSV and 1 Offshore Tug) and delivered 8 vessels (1 AHTS, 5 PSVs, 1 OSCV and 1 Forrage Carrier). Consequently, net order-book fell 11% to NOK14.0b as of end-2Q13 (1Q13: NOK15.5b). Looking into 2H13, management is confident about the prospects for new orders.
Downgrade to SELL
Given that VARD’s results are broadly below consensus, we expect the street to cut its FY13-14F estimates. We also lower our FY13-14F net profit estimates by 20-25%, and cut our FV to S$0.80 (previously S$0.93) on 1.2x PBR (previously 1.5x). Downgrade from Hold to SELL.
Vard Holdings Limited (VARD)’s 2Q13 results came in below ours and the street’s expectations, despite issuing a profit warning earlier. The group reported a net loss of NOK20m for 2Q, bringing its 1H13 net profit to NOK168m – just 28% and 23% of ours and the consensus FY13F estimate. EBITDA margin fell to 4.1% in 2Q13 from 13.8% in the year-ago period. The poor performance was mainly due to operational challenges in its Niteroi and Promar yards in Brazil.
Brazil needs more time to stabilize
According to the management, the business environment in Brazil remains very difficult, characterized by high personnel turnover and tightness in the subcontracting market. The outsourcing of a hull construction worsened the already overloaded situation in Niteroi. This resulted in further delays and cost over-runs. Although the group had implemented several mitigating measures, further deterioration in the future cannot be ruled out. At its new Promar yard, pre-operational expenses and start-up costs were higher than expected and had to be revised upwards.
Orderbook declined to NOK14b
In terms of order-book development in 2Q, VARD secured three new contracts (1 OSV, 1 PSV and 1 Offshore Tug) and delivered 8 vessels (1 AHTS, 5 PSVs, 1 OSCV and 1 Forrage Carrier). Consequently, net order-book fell 11% to NOK14.0b as of end-2Q13 (1Q13: NOK15.5b). Looking into 2H13, management is confident about the prospects for new orders.
Downgrade to SELL
Given that VARD’s results are broadly below consensus, we expect the street to cut its FY13-14F estimates. We also lower our FY13-14F net profit estimates by 20-25%, and cut our FV to S$0.80 (previously S$0.93) on 1.2x PBR (previously 1.5x). Downgrade from Hold to SELL.
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