RHB Research 2015-07-08: Triyards Holdings - Big Win Sends Orderbook Surging. Maintain BUY, TP Raised to $0.84.

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• Triyards’ reported a decent 3QFY15 PATMI of USD5.4m (-14% YoY, +6% QoQ), slightly below expectations due to timing of revenues. 
• Maintain BUY with raised SGD0.84 TP (110% upside, from SGD0.77), based on 1x current P/B, equivalent to 5.7x FY16F P/E. 
• Gearing fell to a low of 0.3x from 0.4x a quarter ago. 
• It also announced USD175m contract wins for two BH450 liftboats (4% ahead of our full-year USD480m target), resulting in a surge in orderbook to USD520m. 

 Sequential quarters to be stronger. 

• Triyards’ revenue recognition should be stronger next quarter with two liftboats entering the steep portion of the S-curve. 
• Based on the delivery schedule, c.80% of the current USD520m orderbook will be recognised by end-FY16F, implying much stronger QoQ performances. 
• Management’s key goal will be to continually replenish its orderbook over the next few years. 
• A positive surprise in 3QFY15 was the USD33m operating cash flow which reduced the company’s net gearing to 0.3x from 0.4x a quarter ago. 

 Making conservative tweaks to model. 

• Despite the larger than expected orderbook, we are taking a more conservative view by 
  1. i) shifting revenue recognition towards later quarters due to timing, 
  2. ii) trimming gross margin assumptions to 17% from 18% (vs 22% in 3QFY15) and 
  3. iii) increasing FY16F admin expenses by 3% though management has guided for controlled overheads due to hiring freezes and other cost-cutting measures. 
• These result in EPS being adjusted by -9%/+1% for FY15/16F. 
• We expect room for positive surprises in FY16F earnings even as our estimates are currently 9% ahead of consensus. 

 No compelling reasons for massive discount. 

• We remain optimistic on the liftboat market due to low supply of competitive assets, coupled with growing demand from oil majors re-focusing on production assets. 
• Triyards’ P/E of < 4x and P/B of < 0.5x represent a 40-50% discount to peers, while the company generates c.15% ROE. 
• We raised our TP to SGD0.84 (from SGD0.77), based on 1x current P/B, implying 7.7x/5.7x FY15/16F P/E. 
• We further highlight that profits from Triyards’ USD520m orderbook, at the current 8.5% net margin, is worth 46% of its current market cap. 
• Triyards remains one of our Top Picks in the sector.

(Lee Yue Jer, CFA)

Source: http://www.rhbgroup.com/