Friday, 14 March 2014

VARD Holdings

Kim Eng on 13 Mar 2014

  • Secured contracts worth over NOK2.3b for three vessels over the last two days.
  • YTD order win of NOK4.6b represent 36% of our full-year forecast of NOK12.8b.
  • Maintain Buy, TP SGD1.07, pegged to 1.4x FY14E BVPS.
What’s New
In just two days, Vard has announced new orders worth over NOK2.3b to construct three offshore vessels. The first contract was a Letter of Intent (LOI) for an Offshore Construction Vessel (OSCV) for Solstad Offshore, scheduled for delivery in 2Q16. This is the largest ever single vessel contract secured by Vard. Vessel price was not disclosed but we estimate it to be at least NOK1.7b. Shortly after, Vard announced contract wins for two more offshore support vessels (OSVs) worth NOK600m for deliveries in 3Q15 and 4Q15 for an undisclosed customer. The hulls of these vessels would be constructed at its yards in Romania with final outfitting to be completed at its Norway yards.

What’s Our View
Following a record order intake of NOK14.2b in FY13, the strong order win momentum follows through to this year. YTD order win of NOK4.6b represents 36% of our full-year forecast of NOK12.8b. Outstanding order book stood at NOK19.4b as at end-FY13 and would be higher now with the new additions.

The strong contract win momentum reinforces our view of a robust earnings recovery starting from FY14E. The build-up in orderbook would drive topline growth, resulting in higher operating leverage, thereby leading to margin recovery from FY14E. We believe that issues plaguing its Niteroi yard would take a back seat in FY14E as the market focuses on the earnings turnaround story. Maintain Buy with unchanged TP of SGD1.07, based on -1SD P/BV of 1.4x.

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