TRIYARDS Holdings

UOB-KAY HIAN RESEARCH on 29 Jan 2013

TRIYARDS Holdings (Triyards) is an offshore fabricator specialising in: (a) advanced construction and offshore support vessels (OSV), and (b) self-elevating units (SEUs), including liftboats.

Liftboats are self-propelled, self- elevating mobile platforms used for servicing fixed offshore installations. Triyards operates two yards in Vietnam and one fabrication facility in Houston, US.

Initiate coverage with a "buy"; target price of $1.11 represents 39 per cent upside. Our target price is pegged at 7.9x FY14 forecast PE, a 10 per cent discount to peers' average of 8.8x FY14 forecast PE, due to Triyards' shorter operating track record and lumpy profit recognition of Ezra's deepwater multi-lay construction vessel Lewek Constellation (Constellation), which comprises 17 per cent of FY14 net profit.

However, we see more room for valuation expansion as Triyards continues to increase profit contributions from third-party contracts. We forecast three-year core net profit CAGR (compound annual growth rate) (2012-15) of 19 per cent, excluding profit from the Constellation.

Triyards was spun out of Singapore-listed oil & gas services company Ezra Holdings (Ezra) via a 1-10 distribution-in-specie. Post listing by way of introduction, Ezra retains a 67 per cent stake in its listed subsidiary.

Triyards will continue to clinch shipbuilding and repair contracts from Ezra. Triyards is a proxy to the growing acceptance of liftboats internationally, being one of the few yards outside the US capable of building such vessels.

In the past, liftboats were used solely in the US Gulf of Mexico, but are now gaining traction internationally as the industry recognises liftboats as a safer and more efficient alternative to traditional work barges.

Triyards will embark on further growth by: (a) developing proprietary third-generation liftboat designs, (b) expanding ship repair capacity, (c) diversifying into new products such as high-speed aluminium commercial and patrol vessels, and (d) growing its equipment business and branding.

BUY