Thursday, 14 August 2014

Swiber Holdings

Kim Eng on 14 Aug 2014

  • Weak 2Q14, as expected. Net loss of USD2.5m after one-offs.
  • Orderbook sank to new low of USD610m with weak replenishments.
  • TP cut to SGD0.57 from SGD0.59, still at 0.5x FY15E P/BV, 1SD below 8-year mean. Maintain HOLD pending improvements in orderbook.
Underlying loss masked by one-offs
Weak 2Q14 results were in line. Adjusting for USD4.0-5.1m gains from the disposal of associates/JVs and a fair-value gain on financial instruments of USD3.5m, we estimate a net loss of USD2.5m. Gross margin rose 3.3ppts QoQ to 7.8% (1Q14: 4.5%, 2Q13: 15.3%), but were still much lower than its 14-18% before 1Q14. This was the result of a lower revenue base for covering fixed costs.
Orders need to flood in
Orderbook replenishment remains our biggest concern. YTD new orders amounted to only USD315m. Orderbook sank to a new 4-year low of USD610m, from USD650m last quarter. Management expects improvements as it is bidding for more than USD8b of contracts in Mexico, West Africa, the Middle East and Asia. These include projects in Mexico where work could start immediately and be recognised in FY14E.
The success rate of its bids remains uncertain. We prefer to be conservative and cut order-win assumptions for FY14E-16E from USD0.7b/0.8b/1.0b to USD0.5b/0.6b/0.8b. Margins over the next few quarters could remain compressed as orderbook dries up.
We slash FY15E-16E core EPS by 66-245%. Swiber is now expected to return to core profitability only in FY16E. Our TP drops to SGD0.57 from SGD0.59 after our EPS cuts, still pegged at 0.5x FY15E P/BV, 1SD below its 8-year mean. Maintain HOLD. We would look to re-rate the stock on higher-than-expected order wins.

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