- 3Q14 net loss first in history. Expected after profit warning.
- More muted order outlook. Needs to show convincing recovery.
- Maintain HOLD & SGD0.73 TP, at trough 1.0x FY15E P/BV. Prefer Nam Cheong in sector.
3Q14 net loss of NOK44m (-157.9% YoY, -131.4% QoQ) was in line after our 41-58% EPS cuts on the heels of last month’s profit warning. EBITDA margins tanked to –1.8% (2Q14: 6.4%, 3Q13: 4.3%) after rising steadily for four quarters. This was blamed on a slow ramp-up of its Promar yard in Brazil, additional costs for two LPG vessels in Promar and cost overruns for isolated European projects. Vard assured these were one-offs. It is also confident of refuting a NOK200m tax claim by the Brazilian authorities and will not be making provisions. 9M14 EPS forms 62% of our FY14E forecast.
Softer outlook
A steady recovery built over four quarters was derailed by its dismal 3Q14, as offshore-deepwater uncertainties broke Vard’s strong order momentum. While there is long-term demand for its vessels, customers may refrain from committing to newbuilds, short term. 9M14 new orders were NOK8.9b, bringing its net order book to NOK20.1b. We forecast NOK11.5b/9.1b/9.1b of order wins for FY14E-16E.
Vard continues to focus on process changes to improve productivity and make management changes to Promar. It still sees breakeven for Promar in 2015. We forecast muted EBITDA margins of 4.2/6.2/6.0% for FY14E-16E.
No change to EPS. Maintain HOLD and TP at SGD0.73, pegged to its trough 1.0x FY15E P/BV. Vard needs to demonstrate a concrete recovery to regain market confidence.
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