Vard Holdings

Maybank Kim Eng Research, June 24

REITERATE "buy". Order intake to gather pace in H2 2013. Vard's share price is off its low of $1.015 following an unwarranted selldown previously.

While there are some easing of concerns over margins and order intake, further re-rating would need to be triggered by real order wins which we believe would gather pace towards H2 2013. Vard has the most attractive valuations among the O&M stocks under our coverage, trading at 5.8x FY2014F PER, 5-6 per cent forward dividend yields and FY2013-2015F ROEs of more than 25 per cent. Reiterate Buy and TP of S$1.65.

Optimism expressed by leading offshore support vessel (OSV) owners following their Q1 2013 results generally support our view that high-end OSV newbuild ordering is on the verge of picking up again in H2 2013. GulfMark Offshore remarked that North Sea fixtures are being set at higher-than-expected levels. Tidewater Inc's recent acquisition of Troms Offshore to expand into the Norwegian market reflects their view on the long-term attractiveness of the North Sea market.

Average utilisation and charter rates for AHTSs and PSVs are generally rising although there are still occasional bouts of volatility. An oversupplied order backlog may still hinder new orders but that should ease as most vessels get delivered in 2013. Solstad believes that there are opportunities for anchor handling tug supply vessel and platform supply vessel orders to surprise on the upside this year.

New rigs entering the market warrants more support vessels. A common notion brought up by the OSV owners is that a large number of rigs entering into service over the next 12 months would warrant the need for more support vessels. We concur with this view which is consistent with rig-delivery schedules of Singapore rigbuilders under our coverage.

The subsea construction market is still strong and Solstad believes that it is underpinned by solid fundamentals and limited availability of modern and large construction vessels.

A batch of pipelay vessel orders from Petrobras potentially worth three billion Norwegian kroner (about S$625 million) is still in the cards which would be a bonus to our expectation of 11.5 billion Norwegian kroner in new order wins for Vard this year.

The award could be near as Petrobras has recently been returning to the market to issue tenders which have been outstanding since 2012.

BUY