Another tough quarter
- 2Q15 PATMI missed despite QoQ improvements. Operationally worse than 1Q15.
- Weak EBITDA margins of 1.8% as Brazil still nursed losses. Expect weak order intake to hurt utilisation further. Cut EPS by 11-15% for lower margins & utilisation.
- Reiterate SELL with above de-rating catalysts. GGM TP still at SGD0.35, even after rollover to 0.55x FY16 P/BV. No dividends expected in FY15 for the third consecutive year.
What’s New
- 2Q15 PATMI of NOK58m (-59% YoY, -163% QoQ) improved from a net loss of NOK92m in 1Q15, but still missed expectations.
- 1H15 bottom line was a net loss of NOK34m against our Street-low profit forecast of NOK161m for FY15.
- Operationally, 2Q15 was worse off, as 1Q15 was dragged down by NOK207m of net forex losses.
- Brazil continued to lose money on slower-than-expected construction progress.
- EBITDA margins dipped to 1.8% (1Q15: 2.1%, 2Q14: 6.4%), reflecting weaker execution.
What’s Our View
- YTD order intake amounted to NOK1.2b against our NOK4.1b for FY15 (FY14: NOK9.5b).
- We cut FY15/16 assumptions further from NOK4.1b/10.0b to NO3.5b/7.9b.
- This could affect yard utilisation and earnings, unless there is a surprise uptick in orders or a strong turnaround in Brazil.
- Vard previously guided for broadly similar EBITDA margins as FY14’s 3.3% but we believe it would fall short, going for just 2.3%.
- Consequently, we cut FY15-17 EPS by 11-15%.
- We also think that Vard may not be able to afford dividends again this year as its cash has been depleted from NOK2.0b in Dec 2014 to NOK904m at end- 2Q15.
- We expect negative FCF.
- TP of SGD0.35 is unchanged even as we roll forward to FY16, still at 0.55x P/BV based on GGM.
- Reiterate SELL.
(Yeak Chee Keong, CFA)
Source: http://www.maybank-ke.com.sg
