Vard Holdings

May 2

YTD, Vard has secured nine orders for new vessels worth about six billion Norwegian krone (S$1.26 billion), meeting about 41 per cent of our full-year order win forecast. Interestingly, at least four of these orders are for large PSVs, which runs counter to the market opinion of oversupply in the large PSV (platform supply vessel) segment.

Similar to the previous two orders placed by Carlotta Offshore, the latest vessel will be built based on the VARD 1 08 design with a total length of 81 metres, beam of 18 metres and a cargo deck area of 830 sq m. Delivery is expected from Vard Vung Tau in Vietnam in Q3 2015.

With four of the nine orders this year to be built in Vietnam, Vard Vung Tau will see better utilisation and should be able to realise normalised operating margins. However - as management has flagged - orders this year tend to be for a smaller number of vessels of larger average values. This will present challenges to the European yards in terms of efficient operational planning.

With margins in Brazil slowly recovering this year but potential operational issues in its main European yards, we feel that Vard's current valuation of 10.8x/8.5x FY14/15 forecast PEs appears fair. We prefer Nam Cheong with its solid execution and potential for earnings surprises, for exposure to the offshore supply vessel construction market. Maintain "neutral" on Vard with a TP of S$1.00 TP, based on a 11x FY14 forecast PE.

NEUTRAL