Current Price S$0.67
Fair Value S$0.83
Waiting patiently for the elusive order wins
Earnings in line. Triyards’ 1Q14 net profit of US$7.3m was in line with our estimates as the higher-than-expected revenues were offset by lower-thanexpected gross profit margins. We maintain our forecasts but will be keeping an eye on how the group progresses with order wins in the next quarters. Our fair value remains at S$0.83, 7x FY15 PER. With potential upside of 24%, maintain Overweight.
Small order wins outside oil and gas industry. It recently won two contracts worth US$7.5m to construct and outfit two cruise liners. This is positive as it could mean more business from outside the oil and gas industry and from its repair business segment, and in our estimates the group has enough work currently to keep its yards busy for FY08/14. We remain optimistic of its prospects of winning enough orders to keep its yards busy after FY08/14 as the oil and gas industry remains buoyant. Order book remains unchanged at US$217m as at end 1Q14. Key risk is the stiff competition from Chinese yards that could potentially eat into its margins for new orders.
It will need 3-5 new orders of SEUs each year for FY08/15-16 to meet our forecasts... Assuming a price of US$55m/unit of BH335, it will need at least 4-5 new orders each year for FY08/15-FY16 to provide work for its yards. As for its bigger version, the BH450, assuming a price of US$85m/unit, the yards will need orders for at least 3 units each year to provide work for FY08/15-16.
… or just 2 orders of its jack-up rigs. Assuming a price of US$200m/unit of its TDU-400 drilling jack-up rig, that would provide enough work for FY15- 16 and we believe it would be a major milestone for the group as it upgrades its capabilities to the next level.
1Q14 revenue increased 69% yoy to S$90.1m, due to higher contributions from the construction of the subsea construction vessel, Lewek Constellation and from the completion stage for three SEUs.
EBITDA margins decreased 6% pts yoy to 12.1% due to different project mix at their completion stages.
Healthy balance sheet. Triyards generated US$6.9m negative free cash flow in 1Q from increased working capital need, offset by lower capex. As a result, its net gearing increased marginally from 52% in the previous quarter to 54% as at end 1Q14. 87% of borrowings were related to working capital requirements. We do note that gearing remains healthy, still below the net gearing of 60% and 56% in FY11 and FY12, respectively.