Swiber Holdings

Kim Eng on 9 Jan 2013

Tendering activities remain firm, Maintain Buy. Our recent conversation with management indicates that offshore construction contracting activities remain strong. There are gushes of contracts coming out from Mexico (Pemex) and India (ONGC). Other promising areas which Swiber is bidding for projects include Indonesia, Myanmar and Thailand where about USD5b worth of contracts relevant to Swiber are available for bidding. We see potential for some of these bids to turn into firm contracts in 1Q13. Our FY13F contract win expectation is USD1.2b. Maintain Buy and TP of SGD0.82.

May still be in the running for ONGC contract. According to Upstream, Swiber together with partner Larsen & Toubro (L&T) recently emerged as the second lowest consortium bidder to construct a process platform for ONGC in the Heera field. Swiber’s quote of USD297.9m came in slightly below the lowest bidder’s USD289.5m bid. Last week, ONGC awarded a separate Heera field contract to L&T in favour of the lowest bidder. We infer that price may not be the ultimate deciding factor and Swiber could still be in the running for this project.

Increased MTN limit. On 24 Dec 2012, Swiber raised its MTN limit from SGD700m to SGD1.0b and expanded the program to include perpetual securities. We estimate that it now has about SGD480m available for drawdown. We believe that Swiber may need more funds to repurchase its sale-and-leaseback vessels. This would see cost savings from lower operating leases but would bring debt back onto the balance sheet. Previously, it has identified seven key vessels to buy back and has repurchased two of those. We understand that if all seven vessels are bought back, savings in operating leases could drive gross margins up from the current 15% level to above 20%.

4Q12 to be unexciting, catalysts in contract wins and margins. We expect 4Q12 results to be unexciting with flat QoQ growth. However, we see re-rating potential coming from more contract wins and improving margins. Stock has been up 8.4% since we initiated coverage a month ago, but valuations are still attractive at current levels in our opinion. Maintain Buy with TP of SGD0.82, pegged to 8x FY13F PER.