Vard Holdings Ltd,
Pipelay vessel orders in the bag
Price Target : 12-Month S$ 0.92 (Prev S$ 0.88)
•Pipelay support vessel orders from DOF-Technip JV worth NOK6.5bn largely within expectations
•But given the extended delivery schedule and possibly low margins especially in Brazil, we cut FY13F/FY14F EPS by 1%/12%
•Maintain HOLD with a revised TP of S$0.92
•Rerating will depend on visible margin improvements and order win momentum in coming quarters
Long anticipated orders. As expected, Vard announced newbuild contracts for four pipelay support vessels from the DOF Subsea - Technip JV for Petrobras-related tenders. We had highlighted these contracts in previous reports. The orders are worth NOK6.5bn (US$1.1bn) in total, NOK0.5bn more than we expected. The two larger vessels with pipe lay towers rated at 650 tons will be built at Vard’s European yards in Romania and Norway and delivered in 2Q16-3Q16. The smaller vessels with pipe lay towers rated at 340 tons will be built at the Promar yard in Brazil and delivered in 4Q16-1Q17.
Extended delivery schedule limits near-term impact. This contract brings YTD-FY13 order wins to NOK10.5bn, and we now expect Vard to book NOK12.5bn new wins in FY13 and NOK11.0bn in FY14. But given more complex requirements, execution may take longer than expected and earnings delivery will be skewed towards FY15/16 rather than FY14. The higher topside equipment content also implies lower margins than usual. Hence, we cut FY13F/14F EPS.
Execution issues in Brazil cannot be ruled out. Given that the Brazilian yard will be building one of its most complex vessels and may be competing for yard space with the Petrobras LPG carrier orders, there may be concerns over margins amid the already difficult operating environment in Brazil. On this note, we would wait for visible evidence of margin improvements and sustainable wins in the coming quarters, before we turn more positive on the stock. Maintain HOLD for now with a revised TP of S$0.92 (pegged to 8x PE) after rolling over to FY14 earnings on the back of higher revenue visibility.
Publish date: 13/08/13