Monday, 26 May 2014

Vard Holdings

Kim Eng on 26 May 2014

  • Secured two new contracts worth NOK1.3b, of which one worth more than NOK1b is for Island Offshore.
  • YTD order win of NOK6.8b forms 53% of our FY14E forecast.
  • Beneficiary of an OSV upcycle; reiterate BUY with SGD1.27 TP based on 1.4x FY15E P/BV.

What’s New
Vard has secured its second contract win for the quarter, following last Monday's win for a platform supply vessel (PSV) worth NOK300m. The new order, worth more than NOK1b, is for an offshore support vessel (OSV) for repeat customer, Island Offshore. The vessel will be delivered from Vard Brevik yard in Norway in 2Q16, while the construction of the hull will be at Vard Tulcea yard in Romania. The new contract win would bring YTD orders secured to more than NOK6.8b, more than 53% of our full-year forecast of NOK12.8b. If this momentum continues, there is scope for us to upgrade our order win assumptions.

What’s Our View
Operationally, Vard is on track for margin recovery as the cost overrun issues at its Niteroi yard in Brazil are resolved. While the new Promar yard in Brazil may face initial teething issues, they are likely to be manageable.

As new rigs enter into service this year and next, we see opportunities in the OSV market. Based on estimates by Pareto Securities, OSV-to-rig ratio could slide from 4.36 currently to 3.89 beyond 2015, suggesting tighter supply ahead. This should continue to drive order win momentum for Vard given its ability to build high-end sophisticated vessels that are increasingly well sought after due to requirements from deeper and harsher environments. This supports our BUY recommendation for Vard. Our TP is based on 1.4x FY15E P/BV, which is 1SD below its five-year P/BV average.

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