Swiber Holdings

OCBC on 15 May 2012

Swiber Holdings (Swiber) reported a 29.1% YoY rise in revenue to US$194.4m but saw a 10.6% fall in net profit to US$8.6m in 1Q12, which were within our expectations. Gross profit margin increased from 16.2% in 1Q11 to 19.8% in 1Q12, but was lower on a sequential basis (4Q11: 21.0%). Current borrowings stood at US$372.8m as at 31 Mar 2012 as there is the possibility of a convertible bond redemption later this year. Though the group is likely to secure more contracts going forward, this means more funds would be needed for working capital. Along with the refinancing needs that may come up, we think that the high net debt situation is a risk in the current volatile market. As such we lower our peg to 10x core FY12/13F earnings, resulting in a lower fair value estimate of S$0.61 (prev. S$0.75). Maintain HOLD.

Decent 1Q12 results
Swiber Holdings (Swiber) reported a 29.1% YoY rise in revenue to US$194.4m but saw a 10.6% fall in net profit to US$8.6m in 1Q12, accounting for 27.0% and 27.4% of our full year estimates, respectively. Gross profit margin decreased from 21.0% in 4Q11 to 19.8% in 1Q12 but remains in the upper range of management’s guidance of 15-20%. Admin expenses, which saw a peak of S$21.3m in 4Q11, decreased to a more normalised S$13.8m in the last quarter.

US$373m refinancing needs this year
Current borrowings stood at US$372.8m with a cash balance of US$139.3m as at 31 Mar 2012. The former includes US$128m of bank loans, US$133m of bonds and convertible loan notes which have a notional amount of US$100m and may be redeemed on 16 Oct this year. The conversion price is S$0.84, more than 40% above the current stock price. We would be focusing on any developments on the convertible notes front to see if there is any possibility of reaching an agreement with the bondholders to extend the put date. As seen from Exhibit 1, the amount of current debt has been increasing in the past three quarters as more long-term debt turns current. Consequently, the level of short-term debt over the group’s cash balance has increased to about US$234m.

Maintain HOLD
Swiber’s outstanding order book of about US$1.2b is expected to contribute to results over the next two years. The group has secured contracts worth more than US$500m YTD and is likely to continue to win more work given the positive industry outlook. However, this also means more funds would be needed for working capital. Along with the refinancing needs that may come up this year, we think that the high net debt situation is a risk in the current volatile market. As such we lower our peg to 10x core FY12/13F earnings, resulting in a lower fair value estimate of S$0.61 (prev. S$0.75). Maintain HOLD.