Swiber Holdings reported a 3.4% YoY rise in revenue to US$274.2m and a 4.5% increase in net profit to US$7.7m, such that 9M13 revenue and net profit accounted for 72% and 57% of our full year forecasts, respectively. Net profit was lower than ours and the street’s expectations – 9M13 net profit represented 54% of consensus’ full year estimate. Management shed more light on the proposed disposal of Kreuz, including reasons such as sharpening its focus on the core EPCIC business. As of Nov 2013, Swiber’s order book stood at US$900m, half of which will be recognised in FY14. We are lowering our gross margin assumption of 16.8-17% for FY13-14F to 15-16% with a seemingly more toned-down approach by management, resulting in a lowering of our fair value estimate from S$0.86 to S$0.72. Downgrade to HOLD.
So-so set of 3Q13 results
Swiber Holdings reported a 3.4% YoY rise in revenue to US$274.2m and a 4.5% increase in net profit to US$7.7m, such that 9M13 revenue and net profit accounted for 72% and 57% of our full year forecasts, respectively. Net profit was lower than ours and the street’s expectations – 9M13 net profit represented 54% of consensus’ full year estimate. Stripping out one-off items, 9M13 recurring net profit was 64% of our full year estimate. Gross margin was 14.2% in 3Q13 vs. 15.3% in 2Q13 and 14.1% in 3Q12.
Explains rationale for proposed Kreuz disposal
According to management, the main reasons for the proposed disposal are: 1) sharpen focus on core EPCIC business, 2) realize investment value of Kreuz, 3) Kreuz will require intensive capex for growth and expansion, and 4) enhance shareholder interest by improving key ratios.
A “good” deal given current circumstances?
In our view, given Swiber’s high net gearing of about 1x, it is not easy for the group to support a significant expansion in Kreuz’s capabilities and venture into deeper-water EPCIC for its core business at the same time. Meanwhile, we note that Kreuz accounted for about 46% of Swiber’s operating profit before interest and tax in FY12, and it is also estimated to contribute about half of our FY13F EPS forecast of 11.5 S cents, hence the loss of future earnings is not small. From what we understand, Swiber is planning to use the cash proceeds of ~US$100m to reduce debt (hence lowering interest cost) and enhance its assets (e.g. installing DP systems on some of its vessels).
Lower gross margin assumptions; downgrade to HOLD
As of Nov 2013, Swiber’s order book stood at US$900m, half of which will be recognised in FY14. According to management, US$40m out of the order book figure belongs to Kreuz. Meanwhile, unlike previously when management was guiding gross margins of 15-20%, we sensed a more toned-down approach of 14-15%. As such, we are lowering our gross margin assumption of 16.8-17% for FY13-14F to 15-16%, resulting in a lowering of our fair value estimate from S$0.86 to S$0.72. Downgrade to HOLD.
Swiber Holdings reported a 3.4% YoY rise in revenue to US$274.2m and a 4.5% increase in net profit to US$7.7m, such that 9M13 revenue and net profit accounted for 72% and 57% of our full year forecasts, respectively. Net profit was lower than ours and the street’s expectations – 9M13 net profit represented 54% of consensus’ full year estimate. Stripping out one-off items, 9M13 recurring net profit was 64% of our full year estimate. Gross margin was 14.2% in 3Q13 vs. 15.3% in 2Q13 and 14.1% in 3Q12.
Explains rationale for proposed Kreuz disposal
According to management, the main reasons for the proposed disposal are: 1) sharpen focus on core EPCIC business, 2) realize investment value of Kreuz, 3) Kreuz will require intensive capex for growth and expansion, and 4) enhance shareholder interest by improving key ratios.
A “good” deal given current circumstances?
In our view, given Swiber’s high net gearing of about 1x, it is not easy for the group to support a significant expansion in Kreuz’s capabilities and venture into deeper-water EPCIC for its core business at the same time. Meanwhile, we note that Kreuz accounted for about 46% of Swiber’s operating profit before interest and tax in FY12, and it is also estimated to contribute about half of our FY13F EPS forecast of 11.5 S cents, hence the loss of future earnings is not small. From what we understand, Swiber is planning to use the cash proceeds of ~US$100m to reduce debt (hence lowering interest cost) and enhance its assets (e.g. installing DP systems on some of its vessels).
Lower gross margin assumptions; downgrade to HOLD
As of Nov 2013, Swiber’s order book stood at US$900m, half of which will be recognised in FY14. According to management, US$40m out of the order book figure belongs to Kreuz. Meanwhile, unlike previously when management was guiding gross margins of 15-20%, we sensed a more toned-down approach of 14-15%. As such, we are lowering our gross margin assumption of 16.8-17% for FY13-14F to 15-16%, resulting in a lowering of our fair value estimate from S$0.86 to S$0.72. Downgrade to HOLD.
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