Vard Holdings - Maybank Kim Eng 2015-11-11: Brazil Yet Again

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VARD HOLDINGS LIMITED MS7.SI 

Vard Holdings - Brazil Yet Again 

• 3Q15 missed with net loss of NOK486m. Brazil cost overruns again the culprit. We now expect losses till FY17. 
• Vard reviewing exposure to Brazil. New business plan to be announced in FY15 results. 
• Maintain SELL. Cut TP from SGD0.35 to SGD0.22, now based on 0.4x P/BV from 0.55x. Risks to our view could come from order win upside or any privatisation by parent company. 

What’s New 

• 3Q15 missed big time with a net loss of NOK486m, a historical low. 
• 9M15 losses were NOK520m vs our previous NOK143m profit forecast for FY15. EBITDA margins were a negative 20.6% (2Q15: 1.8%, 3Q14: -1.8%). The reasons: 
  1. cost overruns and provisions for LPG projects in Brazil; 
  2. slowing work in European yards; and 
  3. a net forex loss of NOK239m. 
• Brazil appeared to be the biggest culprit as EBITDA was positive for its other operations. 
• Vard shared that the complexity of its Transpetro LPG carriers - seven of which it has yet to deliver, out of eight, worth NOK369m each - exceeded its initial estimates. 

What’s Our View 

• Vard is reviewing its exposure to Brazil and could make structural changes. We think these could involve cutting its stake in 50.5%- owned Promar and/or booking impairment charges. 
• We estimate invested capex of c.USD180m for Vard Promar. Vard said it would elaborate more when it reports full-year results. 
• YTD new orders reached NOK2.6b (FY14: NOK9.5b) against our NOK3.5b for FY15. This excludes a new contract that could be worth NOK400-600m. 
• We cut FY16/17 orders from NOK7.9/11.1b to NOK5.0b/9.9b to reflect offshore vessel demand weakness. We now forecast net losses for FY15-17. 
• We slash TP from SGD0.35 to SGD0.22, now based on 0.4x P/BV, on par with what we accord PACRA SP (SELL, TP SGD0.34). 
• Weak order-book replenishment and Brazil woes are the main de-rating catalysts. 
• Upside to our view could come from surprise new orders or any privatisation by Fincantieri, Vard’s parent company.

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-11

Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 0.22 Down 0.35