Price (11 Jul 13 , S$) 0.87
TP (prev. TP S$) 0.80 (0.80
Quarterly loss on difficulties in Brazil; earnings visibility remains poor
● Following a profit warning on 28 June, Vard reported a 2Q13 net loss of NKr20 mn driven mainly by execution challenges in its Brazil operations. While 2Q13 EBITDA margin of 4.1% was in line with our forecast, the company was further impacted by a NKr70 mn write-down of goodwill for its Niteroi yard in Brazil.
● In Niteroi, the remaining four vessels are expected for be delayed by a quarter on average. Vard was also impacted by higher start-up costs in its new Promar yard, as well as cost escalations for two LPG carrier hulls subcontracted to CGU-Rio Nave on a cost-plus contract.
● During the analyst briefing, management provided little clarity on the individual factors driving margins decline. There was also no margin guidance provided for 2H13, as profit could continue to be impacted until the last vessel in Niteroi is delivered in 4Q14.
● While consensus 2013 EPS has been reduced by 14% since the profit warning, we believe there could be further 30% downside. Given limited earnings visibility until the challenges are resolved, we maintain our UNDERPERFORM rating and TP of S$0.80.
First quarterly loss since IPO in 2Q13
Vard reported 2Q13 net loss of NKr20 mn driven by execution challenges in its Brazilian operations. 2Q13 EBITDA margin of 4.1% was in line with our revised forecast following the company’s profit warning on 28 June 2013. However, the company was further impacted by a write-down of remaining goodwill of NKr70 mn related to the Niteroi yard.
Execution challenges in Brazil remain
At its existing yard in Niteroi, profit was impacted by higher costs from outsourcing of hull construction to subcontractors. Although one PSV was successfully delivered in 2Q13, the remaining four vessels are expected to be delayed further by about a quarter. Vard was also impacted by an increase in start-up costs at its new Promar shipyard. In particular, there are cost escalations to the hulls for two LPG carriers which were subcontracted to CGU-Rio Nave shipyard on cost-plus contracts.
We lower our 2013 EPS by 20% due to write-down of goodwill and higher-than-expected taxes. Given limited earnings visibility until the challenges are resolved, we maintain our UNDERPERFORM rating and TP of S$0.80
Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 12/07/13