Triyards Holdings - RHB Invest 2015-10-21: Red Hot Chili Padi

TRIYARDS HOLDINGS LIMITED RC5.SI

Triyards Holdings - Red Hot Chili Padi

Triyards delivered a strong 4QFY15 (Aug) (+59% YoY) to end FY15 just ahead of our forecast.
It also announced USD100m of new contracts for three chemical tankers and other work, lifting its orderbook to a new high of USD564m. Although small, we view it as the strongest offshore & marine player operationally, with a clean bill of financial health.
Maintain BUY, with a SGD0.94 TP (from SGD0.84, 135% upside) based on 1.05x P/BV. The stock trades at a mere 2x of its orderbook profits.

Triyards’ record USD564m net orderbook is equivalent to 17 months of FY16F revenue. With its orderbook more than double the FY14 tally (see Figure 1), we forecast stronger revenues driving 24%/16% earnings growth in FY16/FY17, with conservative margin assumptions.
Triyards has delivered 10% net margins in the last two years, while we forecasted only 8.3-8.7% (at these margins, it trades at 2x orderbook profits).
Management shared that the tender book is at the USD2bn level, with a “more than even” chance of winning bids over the next 6-18 months.

Currently viewed by investors as a pure oil & gas play, Triyards’ c.USD80m contracts in chemical tankers is a step towards diversifying its orderbook exposure to sectors that are counter-cyclical to that of oil – which should assuage investor worries.

Triyards’ net gearing has fallen to 0.29x from 0.51x in FY14. Its EBITDA interest coverage stands at 9.6x, and we expect ROE to further improve to 15% going forward. Counter-intuitively, the stock is priced for distress, at < 3x forward P/Es and only 0.45x current P/BV.
While we recognise that investors are likely concerned about its parent Ezra (EZRA SP, TRADING BUY, TP SGD0.36), Triyards has proven itself independent with < 2% orderbook exposure to Ezra, presenting an interesting investment opportunity.

Although small, Triyards packs a “chili padi” punch well above its weight, combining lowest-cost Vietnamese operations with high build quality (as its liftboat customers and users of the Lewek Constellation can attest.)
We believe its capabilities and rapidly-growing orderbook justify a small premium to book, even in today’s environment, and raise our TP to SGD0.94 based on 1.05x P/BV (from 1.0x).
Triyards remains one of our Top Picks in the sector.

Lee Yue Jer CFA RHB Research | http://www.rhbinvest.com.sg/ 2015-10-21

RHB Research SGX Stock Analyst Report BUY Maintain BUY 0.94 Up 0.84