VARD Holdings’ 1Q revenue and net profit declined by 2% and 30% YoY to NOK2.7b and NOK188m respectively, largely due to (i) the completion of several high-margin jobs last year, and (ii) operational challenges in the Niteroi yard in Brazil. Although 1Q results were slightly lower than ours and consensus estimates, we now see positive developments that we believe would herald an earnings recovery in FY14F. Firstly, management is now more positive on Brazil and expects operations to stabilize by year-end. Secondly, order-book is at a very healthy level and management is optimistic on securing new contracts. Thirdly, management is now able to commit to longer-term investment with Fincantieri coming onboard as a controlling shareholder. Maintain BUY with unchanged S$1.52 fair value estimate.
1Q result below
VARD Holdings’ 1Q revenue and net profit declined by 2% and 30% YoY to NOK2.7b and NOK188m respectively, largely due to (i) the completion of several high-margin jobs last year, and (ii) operational challenges in the Niteroi yard in Brazil. Although 1Q results were lower than ours and consensus estimates, we now see positive developments that we believe would herald an earnings recovery in FY14F.
Brazil operations under control
Firstly, management is now more positive on Brazil and expects operations to stabilize by year-end as improvement measures take effect. The new Promar yard is on schedule for commencing operations in June 2013. Management is also confident of keeping to the original delivery schedule for LPG tankers 3 to 8.
Optimistic of new orders
Secondly, management is optimistic about its order outlook. Incorporating the delivery of 5 vessels in 1Q and the 6 new contracts secured since the beginning of 2013, we estimate the current order-book to be ~NOK16.5b (or 1.3x book-to-bill). This is a very healthy level, which should provide a base for a better FY14F performance.
Shareholding stability
Thirdly, management is positive on Fincantieri being the new controlling shareholder. At the Board level, there is now stability to engage in long-term strategic planning. Besides Brazil, VARD will invest in Europe to improve its competitiveness, and in Vietnam to expand its capabilities. Over time, such investments should result in a stronger growth profile. In addition, there may also be opportunities for VARD to tap on Fincantieri’s larger client base and yard network.
Maintain BUY; FV unchanged at S$1.52
VARD’s management remains intact. With the new majority shareholder supportive of long-term growth, Brazil operations under control and an improving order outlook, we find current valuation (FY13-14F PER of 6-8x) attractive. Maintain BUY with unchanged S$1.52 fair value estimate.
VARD Holdings’ 1Q revenue and net profit declined by 2% and 30% YoY to NOK2.7b and NOK188m respectively, largely due to (i) the completion of several high-margin jobs last year, and (ii) operational challenges in the Niteroi yard in Brazil. Although 1Q results were lower than ours and consensus estimates, we now see positive developments that we believe would herald an earnings recovery in FY14F.
Brazil operations under control
Firstly, management is now more positive on Brazil and expects operations to stabilize by year-end as improvement measures take effect. The new Promar yard is on schedule for commencing operations in June 2013. Management is also confident of keeping to the original delivery schedule for LPG tankers 3 to 8.
Optimistic of new orders
Secondly, management is optimistic about its order outlook. Incorporating the delivery of 5 vessels in 1Q and the 6 new contracts secured since the beginning of 2013, we estimate the current order-book to be ~NOK16.5b (or 1.3x book-to-bill). This is a very healthy level, which should provide a base for a better FY14F performance.
Shareholding stability
Thirdly, management is positive on Fincantieri being the new controlling shareholder. At the Board level, there is now stability to engage in long-term strategic planning. Besides Brazil, VARD will invest in Europe to improve its competitiveness, and in Vietnam to expand its capabilities. Over time, such investments should result in a stronger growth profile. In addition, there may also be opportunities for VARD to tap on Fincantieri’s larger client base and yard network.
Maintain BUY; FV unchanged at S$1.52
VARD’s management remains intact. With the new majority shareholder supportive of long-term growth, Brazil operations under control and an improving order outlook, we find current valuation (FY13-14F PER of 6-8x) attractive. Maintain BUY with unchanged S$1.52 fair value estimate.
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