Strong 1Q14 results to begin the year. Mermaid announced a strong set of first quarter results with service income generation of US$83.8m and net profit of US$13.2m. The company has met 28% of both our top and bottom‐line forecast for FY14 and is en‐route to complete a strong comeback.
Subsea division achieved overall higher profitability. The Subsea group achieved higher operating profitability of US$7.2m vs a loss of US$0.2m in 1Q13. This higher profitability was primarily due to the Saudi Aramco diving services contract which resulted in vessel utilization at 85.9% this quarter vs 50.6% in 1Q13. The Surveys group registered lower operating profits of US$1.4m vs US$2.1m a year ago as some ROV vessels came off‐hire.
MTR‐2 contributes to higher drilling profitability. MTR‐2 which is currently on a
2 year contract with Chevron Indonesia achieved 100% utilization this quarter. Consequently, operating profits increased US$2.4m to US$3.1m. This is despite MTR‐1 currently on stand‐by and did not contribute positively to earnings this quarter.
AOD the star performer. Profits from AOD investment was US$7.1m this quarter compared to losses of US$0.4m in the previous corresponding quarter. This is due to all 3 Jack‐up rigs currently on active engagement with Saudi Aramco. Contribution from AOD is expected to be strong given that the rigs are all on long term contracts stretching into FY16.
1Q14 earnings almost matching FY13. With existing orderbook still in excess of US$500m, earnings visibility for the rest of FY14 remains strong. 1Q14 earnings of US$13.2m is already close to matching Mermaid’s FY13 profits of US$15.7m, setting the stage for a record breaking year in terms of profitability.
We maintain our BUY recommendation as the company has performed in‐line with our expectations. Fair value remains at S$0.605 pegged to 8.8X FY14 EV/EBITDA.
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