Vard Holdings - RHB Invest 2016-03-02: Parent Fincantieri Throws a Lifeline

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VARD HOLDINGS LIMITED MS7.SI 

Vard Holdings - Parent Fincantieri Throws a Lifeline 

• We think Vard has gone too far south to merely a third of book value (hitting one quarter at one point). 
• We see its parent Fincantieri providing enough work for Vard to tide through the downturn, as the former has too many orders while the latter too much yard capacity. 
• Our revised SGD0.21 TP (31% upside) is based on 0.4x FY16F P/BV, as we upgrade the stock to BUY from Sell, after its 72% plunge since April last year. 

New business plan for its yards. 

• Vard would dedicate its Aukra yard in Norway to aquaculture vessels and to develop products and technology for this industry. It would maintain a presence in Brazil, focusing future work on its newer Promar yard. 
• We think a disposal of the Niteroi yard is likely. 
• Management guides for c.NOK9bn revenue in FY16 although the orderbook currently stands at only NOK10.2bn, and targets a return to NOK12bn revenue by FY20. 

High gearing a rightful concern. 

• Vard’s net gearing of 356% today is a key concern. 
• Of its loans, 92% are vessel construction loans, which would begin to fall once vessels are delivered. 
• With 18 of its 29-vessel orderbook to be delivered this year, its net gearing should come down rapidly. 
• If Fincantieri sees a long-term working relationship with Vard, we believe it would not let Vard go under. 

Preparing for Fincantieri work. 

• A close look at Vard’s interested person transactions reveals an “agreement regarding extension of barge”, which we understand to be a platform on which Fincantieri jobs can be performed. 

A privatisation is now more likely. 

• We did not believe the privatisation angle when Vard was trading at book value, though speculation was rife in 2H15. 
• At a third of book value, this now looks increasingly likely, especially if the two companies can work closely together on cruise ship vessels. 

Quality is worth something, at some point. 

• Vard’s ability to engineer and build highly-technical vessels is not in doubt. 
• If the potential lifeline from Fincantieri turns out to be a meaningful working relationship, we believe Vard’s shares could trade up to 0.6x FY16F P/BV, or higher if the parent makes a privatisation bid. 
• Our SGD0.21 TP (from SGD0.29) is based on 0.4x FY16F P/BV (vs 0.55x). 
• Upgrade to BUY (from Sell).

Lee Yue Jer CFA RHB Research | http://www.rhbinvest.com.sg/ 2016-03-02

RHB Research SGX Stock Analyst Report BUY Upgrade SELL 0.21 Down 0.29