Vard Holdings: Closing The Year With a Big Order Win
(NEUTRAL, SGD0.81, SGD0.85)
VARD’s latest order lifts its 2013 new order wins to NOK13.4bn and unbilled orderbook to NOK21bn. The win reflects the strong underlying demand for OSVs and specialised offshore vessels.
However, we maintain NEUTRAL on VARD, as its Brazilian operations will remain a drag on overall margins, while its 9.3x FY14F P/E valuation is not as appealing as other OSV shipbuilders.
Highest annual order wins since 2007. VARD has secured a new order from maiden customer Harkand for the design and construction of a diving support and construction vessel with a total value of more than NOK1bn.
YTD order wins of NOK13.4bn is the company’s highest since 2007 and we estimate that VARD has an unbilled orderbook of NOK21bn. The outlook for new orders remains positive and we expect VARD to sustain an annual order win of NOK12bn in 2014 and 2015. Demand is likely to be stronger for anchor handling tug and supply (AHTS) and offshore subsea and construction (OSCV) vessels.
Brazil will continue to be a drag on overall margins. VARD has four offshore support vessels (OSVs) to be delivered from its Niterói yard in Brazil and we expect these four projects to continue weighing down on overall margins in 2014. EBITDA margins have picked up slightly to 4.4% in 3Q13 from 4.1% in 2Q13. 9M13 EBITDA margins were at 6.5% and we believe margins are unlikely to return to the 10-12% levels in the next two years.
Minor tweak to earnings. We raise FY14F-15F EPS by 1-2%, given that its 2013 order wins of NOK13.4bn is ahead of our NOK12bn assumption.
Over FY13/14F/15F, we forecast EBITDA margins of 6.7%/7.6%/8.2%. Our earnings estimates for FY14F-15F are 17-23% below consensus, as we have factored in lower margins.
Maintain Neutral. We keep our NEUTRAL rating with an unchanged TP of SGD0.85 based on 10x FY14F P/E. We prefer rival OSV builder Nam Cheong (NCL SP, BUY, TP: SGD0.45).
Publish date: 02/01/14