Swiber Holdings

Kim Eng on 5 Dec 2012


Riding on the oil and gas upcycle. We initiate coverage on Swiber with a BUY rating and target price of SGD0.82, pegged at 8x FY13F PER. We expect EPS to grow at a CAGR of 18% over FY12-14F, supported by recognition of its USD1.4b offshore construction orderbook and sturdy contract win momentum. Swiber is establishing a stronger presence in the offshore construction space, garnering a clientele of international oil and gas players and is thus in a sweet spot to ride the offshore oil and gas upcycle.

Enlarged fleet to take on bigger roles. Fleet size increased from only 10 vessels in 2006 to more than 50 currently, including 15 construction vessels. This allows it to handle more sophisticated jobs, have lesser
dependence on third-party vessels, and therefore greater flexibilities in fleet deployment. The results would be better cost controls, margin improvements and the ability to bid more aggressively for contracts.

Record contract wins with more to come. Strong contract wins is an early testament to the success of its fleet expansion plans and also a reflection of the robust contract award environment. Outstanding orderbook stood at USD1.4b as at Nov 2012 which would provide support for its topline for the next 2 years. 2012 has been a bountiful year of contract wins with YTD orders received in excess of USD1.7b (USD733m in 2011). Swiber is confident that bidding environment in 2013 would be even better.

Overhang from high gearing and cash needs. Capex needs for fleet expansion necessitated Swiber to incur a large amount of debt. Net gearing stood at 1.0x as at 9M12 but should trend down to 0.8x by end-FY12. It also issued SGD80m of 9.75% perpetual securities recently. Fleet expansion is at its tail end but we foresee that cash needs are still tight as Swiber intends to repurchase more sale-and-leaseback vessels for better economics.

Relative laggard, low valuations, limited downsides. The stock is a relative laggard, trading at only 5.8x FY13F PER and 0.6x P/B. While gearing and cash needs are valid concerns, at current valuations, downside is limited and supported by our RNAV valuation of its assets which comes up to SGD1.11 per share. Initiate with BUY.