Swiber Holdings too early to turn bullish

Weak share price performance
Since our previous report on 14 Aug, the share price of Swiber Holdings has dropped 13% compared to the STI’s flattish performance. We believe that this could be related to the relatively slow new order flow – the last announced order win was in Jun, and YTD new orders total US$315m vs last year’s US$588m. In addition, oil prices have been sliding of late, and should this trend continue, more exploration and development projects may be put on hold.

West Madura tender cancelled, but hope from ONGC
According to Upstream, Indonesia’s Pertamina has also cancelled its tender for the EPIC contract for the central processing facility and two well-head platforms for its West Madura project. Swiber was one of the contenders. A re-tender may be issued, but this also means a delay in the award of contracts. On a more positive note, there is talk that India’s ONGC may return to the market next month and revive the US$500m tender for the Bassein process platform.

Potential disposal gains in the future?
Recall that Swiber booked a significant disposal gain from Kreuz earlier this year. Its current stake in Vallianz is not as high (24.3%), and with Vallianz’s market capitalisation of S$315m, this translates to S$77m for Swiber’s stake. It is likely that Swiber may want to see

Swiber Holdings core net loss of US$8m in 2Q14

Swiber Holdings reported a 9.4% YoY fall in revenue to US$219m but saw a 143.1% increase in net profit to US$10.1m in 2Q14, boosted by one-off items amounting to US$18m comprising gain on disposal of associate, JV, PPE, foreign exchange gains and fair value gain on financial instruments. Excluding these, the group saw a core net loss of about US$8m in the quarter, such that 1H14 reported a core net loss of ~US$34m vs our full year core net loss estimate of US$31m.

As of Aug 2014, the group has an order book of about US$610m, and expects to secure more contracts in the next two quarters as more bids are being submitted. Pending an analyst briefing later in the afternoon, we put our HOLD rating and fair value estimate of S$0.63 under

Swiber Holdings waiting for more contracts

Secures US$80m contract, but still needs more
Swiber Holdings recently announced that it has secured an engineering, procurement, installation and construction (EPCIC) contract in Latin America worth US$80m. This involves subsea development work including pipeline tie-in work, and will commence immediately with completion scheduled for 2015. Though this would add to its order book, we still expect weak results for the next two quarters, unless the group clinches more contracts soon with an immediate start date. Earnings may pick up, however, in 4Q14, which is when a significant portion of projects in its order book of US$650m (as at 1Q14) will commence. Since 2013, the momentum of new contract wins has been relatively slow – including this recently announced contract, the group has secured US$315m worth of work YTD, vs. about US$588m for 2013 and US$1.6b for 2012. It is imperative that the group continues winning contracts given its significant overheads.

Eyeing opportunities in Latin America, including more decommissioning work On a more positive note, the group has proven to be able to establish a foothold in the growing energy sector in Latin America – Swiber successfully completed the construction of a 77km-long submarine duct for PEMEX last year, and part of its earlier contract wins this year also involved work in Latin America. Swiber is also eyeing opportunities in the decommissioning segment, where a push to dismantle abandoned oil and gas infrastructure in the Gulf of Mexico has created a promising market for companies.

Also bidding for other work Meanwhile, the group is also seeing opportunities in its traditional markets like India. According to Upstream1, it is one of five contractors bidding for

Swiber Holdings Dim outlook for next two quarters

Swiber Holdings reported a 35.6% YoY fall in revenue to US$199.5m but saw a 139.3% increase in net profit to US$48.0m in 1Q14, boosted by a US$95.1m gain on disposal of subsidiaries (Kreuz). Excluding this one-off and a US$20.9m fair value on financial liabilities, the group saw a core net loss of US$26.2m in the quarter, below our expectations. The group has a current order-book of US$650m, of which a significant portion of projects will commence in 4Q14. We will have more details at the analyst briefing later in the afternoon, but with the disappointing results and dim earnings outlook for the next two quarters, we put our Hold rating and fair value estimate of S$0.72 under review.

Swiber Holdings contract wins worth a total US$235

Swiber Holdings on Monday announced a series of five "sizeable" contract wins worth a total US$235 million (S$299.8 million).

Three of these contracts, which amounted to US$145 million, were awarded to the group for works that will be executed in Latin America and Southeast Asia.

The remaining two contracts were awarded to Swiber's associate company and joint venture firm, for services that will be executed in Southeast Asia.

These contracts will begin immediately and are expected to be completed in next two years, it said.

Swiber Holdings: So-so set of 3Q13 results

Swiber Holdings reported a 3.4% YoY rise in revenue to US$274.2m and a 4.5% increase in net profit to US$7.7m, such that 9M13 revenue and net profit accounted for 72% and 57% of our full year forecasts, respectively.

Net profit was lower than ours and the street’s expectations – 9M13 net profit represented 54% of consensus’ full year estimate. Stripping out one-off items, 9M13 recurring net profit was 64% of our full year estimate.

Gross margin was 14.2% in 3Q13 vs. 15.3% in 2Q13 and 14.1% in 3Q12; we are likely to reduce our margin assumptions following this weaker-than-expected set of results. Pending an analysts’ briefing later in the afternoon, we put our Buy rating and our fair value estimate of S$0.86

Kreuz, Swiber, Nam Cheong

Kreuz Holdings (KRZ SP, 5RK) – New capacity to bridge 2014 growth gap

Last price: S$0.74
Target Price: S$0.68

Kreuz reported 1Q13 numbers, which were in line with our expectation. Margins continued to improve, while the group also reported its seventh consecutive quarter of positive operating cash flow. Kreuz’s orderbook currently stands at US$200m, which will be recognised over 12-18 months. Even just based on this, we estimate that the group will be able to achieve 70-75% of our full-year revenue forecast. Management plans to charter in one additional third-party vessel on a 1+1 year contract, which will add capacity and allow the group to bid for additional contracts. Kreuz has an option with a Chinese shipyard for a second deepwater subsea construction vessel, which will probably be exercised in light of buoyant subsea activity. We maintain BUY with an unchanged target price of S$0.68, pegged to a 2014F PE of 6.5x. We see the potential to raise our target price now that the share price has exceeded it. Technically, the stock has been supported near S$0.57 and a break above S$0.75 may see it test S$0.85.

Nam Cheong (NCL SP, N4E) – Strong earnings visibility from a record net orderbook

Last price: S$0.275
Target Price: S$0.34

Nam Cheong’s reported 1Q13 profit was in line with our forecast. A key positive was the sale of five vessels, bringing net orderbook to a record RM1.3b. This provides strong earnings visibility for the next three years. According to management, there have also been more enquiries on built-toorder vessels, which is a sign of an industry-wide uplift in activity. Management disclosed more details about the shipbuilding programme for 2014, which we view as a wellbalanced mix of different vessel types. We maintain BUY and target price of S$0.34, based on

Swiber higher administrative costs and tax expenses impact core earnings

Fair Value S$0.70


4Q11 results significantly below
Swiber Holdings (Swiber) reported a 40.5% increase in revenue to US$654.5m but a 14% drop in net profit to US$32.1m in FY11. Revenue was in line with our expectations but bottom-line was significantly below ours and the street’s estimates of US$42m and US$40.2m, respectively. The group had turned in net profit of only US$1.5m in 4Q11 vs. US$8.5m in 4Q10 and US$13.5m in 3Q11; and the reasons for the underperformance were
1) lower other operating income,
2) higher administrative expenses, and
3) a jump in income tax expense.

Swiber 14% fall in gross profit to US$22.8m in 3Q11

OCBC

Swiber Holdings: Net profit bumped up by one-off items

Core net loss in 3Q11. Swiber Holdings (Swiber) reported a 12.5% YoY rise in revenue to US$137.7m and a 14% fall in gross profit to US$22.8m in 3Q11, such that 9M11 revenue and gross profit figures formed 76% and 73% of our full year estimates, respectively. Net profit increased by 94.1% to US$13.5m in the quarter, but we note that this was bumped up by exceptional items such as fair value gains on financial liabilities, foreign exchange gains and disposal gains. Stripping away one-off items, we estimate the group experienced a US$1.8m core net loss in the quarter, worse than our expectations; 9M11 core net profit met only 60% of our full year estimate.

Still guiding for 15-20% gross margin range. Gross margin of 16.6% in 3Q11 was lower than 21.7% in 3Q10, but better than the 14.7% reported in 2Q11. Moving forward, management mentioned that margins may remain under pressure over the next 12-18 months, but the group will implement plans that seek to control costs to maintain a 15-20% gross margin range. As the number of employees in the group (inclusive of onshore and offshore personnel) rose from 1,290 as at 30 Sep 2010 to 1,676 as at 30 Sep 2011, administrative expenses continued to climb as well, increasing by 25.8% YoY and 12.8% QoQ to US$13.0m in 3Q11.

Order book of US$1b and still bidding. Swiber has secured new contracts worth about US$758m YTD for work in South Asia, SE Asia and the Middle East, and bidding activity in the industry remains active. Management is optimistic about the industry outlook, given the amount of jobs that are coming up for tender in SE Asia and South Asia in the next few years. As the group mainly works with large oil majors and national oil companies, there have not been significant changes with regards to payment terms. Looking ahead, the group has an order book of about US$1b (as of Nov 2011), which is expected to contribute to its results over the next two years.

Maintain HOLD. The group has put its proposed perpetual preference shares issue (refer to 24 Oct 2011 announcement) on hold, which is not surprising given current uncertainties in the market. We keep our peg of 10x for the stock but roll forward our valuation to FY12F core earnings, and this bumps our fair value up from S$0.51 to S$0.58. However, given limited upside potential, we maintain our HOLD rating on the stock.


AM Fraser

Swiber - Fair-value and forex gains boost Q3 profit Swiber Holdings has posted a near doubling in 3Q net profit to US$13.52mil. Revenue for the three months ended Sept 30, 2011, climbed 12.5% year-on-year to US$137.73mil. The Q3 performance was helped by a 108% surge in 'other operating income' to US$16.1mil. 'The increase was due mainly to foreign exchange gain of US$4.4mil and changes in fair value of financial derivative embedded in the convertible bonds of US$9.4mil. Also in Swiber's favour was a sharp 92.6% year-on-year drop in 'other operating expenses' to US$747,000, which was mainly due to fair-value and foreign exchange losses. EPS was 2.7 US cents, up from 1.4 US cents a year ago. Swiber expects its order book of about US$1bil to contribute to its result over the next two years.