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UOB Kay Hian 2015-08-21: Triyards Holdings Limited - Yard Visit: Liftboats Sir, Thousands Of Them.

TRIYARDS HOLDINGS LIMITED RC5.SI

Yard Visit: Liftboats Sir, Thousands Of Them 

  • We visited Triyards’ shipyards in Vietnam this week, and got an update on their projects. 
  • Construction is proceeding on schedule, with the exception of the MPSVs which were held back slightly due to design upgrades. 
  • The stock has been unduly punished by poor sentiment in the OSV space, despite its excellent fundamentals, low net gearing of 30% and FY15 ROE of about 15%. 
  • Maintain BUY with a target price of S$0.87. 


WHAT’S NEW 


We visited Triyards’ facilities in Vietnam this week. Key takeaways: 

Projects remain on track at SSY and SOFEL yards. 

  • We visited the SSY and SOFEL yards, where we saw nine projects in mid/final stages of completion, of which seven were liftboats. Projects remain on track for their scheduled delivery. Projects viewed were: 
    1. Ezion’s four liftboat units - Teras Conquest 8 & 9, and two liftboats TBN, 
    2. Swissco’s liftboat, 
    3. the Libra FPSO turret, 
    4. two liftboats for an American client and, 
    5. the power plant component. 
  • Teras Conquest 8 and Teras Conquest 9 were in advanced stages of completion with delivery due in 4Q15. Yard utilisation was roughly c.90%. 

Strategic Marine running at about 60% capacity. 

  • We were given a brief tour of Strategic Marine’s yard by Mark Schiller, CEO of Strategic Marine. Utilisation was lower at 60%, but activity remained high with six 26-metre (wind farm crew transfer boat) and three 40-metre (oil and gas crew transfer boat) vessels under construction. Each of the aluminium-hulled boats takes 5-6 months to complete, and costs about US$4m-5m apiece. The yard is able to build as much as 22 such vessels a year. 

MPSV orders underwent design modification. 

  • The two MPSV orders Triyards secured in Mar 15 had only cut steel at the time of our visit. We understand that the vessels underwent a design modification to an ice-class vessel, and the resulting design approvals delayed the construction start. The units are slated for delivery in 2017, with delivery of each vessel staggered by 6 months. 

Jacking system determines liftboat’s workability. 

  • Industry newsflow has been awash with new competitors entering liftboat construction, posing a threat to Triyard’s business. However, a technological barrier exists: the high level of jacking activity – 20 to 100 cycles as compared with 10 cycles on a drilling jackup – means that the robustness of the jacking system is critical. New entrants have yet to perfect the construction technology that Triyards employs. 
  • The Qatar incident is a clear example: Gulf Drilling International’s liftboat Rumailah (Built: 2014 by Gulf Piping Co) collapsed while carrying out support work. According to a naval architect cited by Upstream, the fact that one leg was jacked up higher than the other two was indicative of a possible jacking system failure. As such, we don’t think that competitors will pose a threat yet to Triyard’s business, especially given the stringent operational requirements of oil majors and NOCs. 

STOCK IMPACT 


 Orders making steady progress, selldown largely due to sentiment. 

  • Business continues as usual at Triyards, with orders advancing on schedule. We understand that none of the clients from its current orderbook have requested any form of deferrals or cancellations. The stock has been indiscriminately sold down despite delivering record contract wins and solid results. Poor sentiments in the offshore marine sector coupled with the Singapore dollar currency weakness have played a large part in its recent share price weakness. 

 Low net gearing of 30%. 

  • 9MFY15 net gearing was 30%, low compared with the sector mean of 61%. With 9MFY15 net operating cashflow at US$58.7m, and interest cover of 8.1x, Triyards is being unduly punished for having a debt-light balance sheet. 

 Orderbook healthy at US$520m with earnings visibility to 2017. 

  • As of Jul 15, net orderbook was at US$520m with earnings visibility into 2017. Triyards has secured US$501m worth of contracts for FY15, almost triple its contract wins in FY14. Based on our estimates, about 85% of its net orderbook will be recognised by end-FY16. 

EARNINGS REVISION/RISK 

  • No change to our earnings assumption. 

VALUATION/RECOMMENDATION 


 Maintain BUY, with a target price of S$0.87. 

  • We keep our target price of S$0.87 unchanged, based on 0.8x FY16F P/B. Our FY16F P/B yardstick represents a 20% discount from OSV owners 1.01x 2016F P/B, assuming a Brent crude price of US$70/bbl. Based on an adjusted regression, OSV yards have historically traded at a 20% discount to OSV owners. Triyards is currently trading at an undeserving 0.3x FY15F P/B, despite yielding about 15% FY15 ROE in an environment where its peers are making losses or delivering an average of 4.3%. As such, this represents an attractive accumulation level for long-term investors willing to ride out the volatility in the oil cycle. 

SHARE PRICE CATALYST 

  • Oil price increase. 
  • New contract wins.


Nancy Wei | Foo Zhi Wei | http://research.uobkayhian.com/ UOB KH 2015-08-21
BUY Maintain BUY 0.87 Same 0.87


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