Vard Holdings

DBS Group Research, June 5

ORDERS continue to flow in faster than expected. Vard has secured a design and construction contract from Norwegian customer Rem Offshore for one high-end offshore construction and anchor handling vessel worth NOK800 million (S$167.7 million), to be delivered in Q1 2016. This is the second contract secured in a week, following a LOI for two PSVs (and an option for a third) signed with upcoming PSV player Nordic American Offshore.

FY2014 order wins could potentially better FY2013's high. Including the LOIs, this marks Vard's fifth contract win in Q2 2014 and its 13th newbuild contract since the beginning of FY2014. We estimate YTD contract wins to be about NOK8.5 billion already, or 60 per cent of our full-year order win forecast of NOK14 billion within just five months of FY2014, ahead of our expectations.

Vard is in the running to beat FY2013 new order wins of NOK14.2 billion, which included the landmark NOK6.5 billion pipelay vessels order from Petrobras. Apart from the offshore subsea construction space where Vard scored heavily in FY2013 and Q1 2014, Q2 2014 orders seem to signal the long-anticipated revival in the high-end OSV space as well, with orders for PSVs and anchor handlers returning.

Hence, with Brazil issues likely to diminish from H2 2014 onwards, and with improved utilisation and arguably better priced contracts at the rest of the group's yards, we maintain our "buy" call with a higher target price of S$1.34, as we believe the recent spate in order wins and ongoing sector re-rating call for a higher peg of 11 times FY2014/2015 blended earnings estimates.

BUY