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Triyards Holdings - UOB Kay Hian 2015-10-21: Records A Stellar Year And Starts FY16 With US$100m Contract Win

Triyards Holdings - UOB Kay Hian 2015-10-21: Records A Stellar Year And Starts FY16 With US$100m Contract Win TRIYARDS HOLDINGS LIMITED RC5.SI 

Triyards Holdings (ETL SP) FY15: Hail To The Chief – Triyards Records A Stellar Year And Starts FY16 With US$100m Contract Win 


  • Triyards’ FY15 net profit was US$27m, in line with expectations. It also announced a US$100m contract win, comprising chemical tankers, aluminum vessels and a fabrication project. Current US$564m net orderbook provides earnings visibility for two years. 
  • We revise our earnings estimates and roll forward our target price to S$0.88
  • Valuations are compelling at 2.7x FY17F PE, 0.3x FY17F P/B and 15% ROE. Maintain BUY




RESULTS 


• FY15 results in line with expectations, records a 59% jump in earnings. 

  • Triyards’ FY15 net profit was US$27.2m, 98% of our estimate of US$27.7m. Net profit rose 59% to US$8.4m for 4QFY15 (4QFY14: US$5.3m), driven largely by significant contribution from four self-elevating units (SEU) secured in the year which have progressed into advanced stages of construction. 
  • Revenue grew 81% yoy to US$88.4m in 4QFY15 (4QFY14: US$48.8m), driven by the above four SEU units. The strong quarterly growth was partially offset by weaker gross margin, which declined from 27% to 22% owing to a mix of lower margin projects. Full-year gross margin grew 3ppt from 19.3% to 22.2%. 

• Admin costs remained high, up 80% yoy to US$30.1m for FY15. 

  • This stemmed largely from its acquisition of Strategic Marine in Oct 14, which doubled admin costs. Management guided admin costs to decline 5-10% going forward. 
  • Net gearing declined to 29.8% in FY15 from 51.2% in FY14 to 29.8% as cash received from project completions led to repayment of debt drawn down for working capital. About 91% of Triyards’ borrowings relate to working capital financing for its projects, and its gearing fluctuates with the projects’ construction stages. 

• Dividend of 1.0 S cent declared. 

  • A final dividend of 1.0 S cent was declared for FY15, unchanged from FY14, in spite of the year’s strong results. As the industry outlook remains uncertain and risks a prolonged downturn, we duly note management’s judgement to conserve cash. 



STOCK IMPACT 


• US$564m net orderbook guarantees 2 years’ earnings visibility. 

  • Hail to the Chief - CEO Chan Eng Yew has successfully led the company to secure US$500m contract wins for FY15 within a year of coming on-board and amid an industry downturn. This is nearly triple the contract wins secured for FY14 (US$179m). Net orderbook currently stands at US$564m, and with an orderbook burn rate of c. US$270m per annum, Triyards has effectively guaranteed earnings visibility for the next two years. 

• Starts FY16 with US$100m contract win. 


  • Separately, Triyards announced a US$100m contract win for FY16, comprising three chemical tankers for Swiss-Canadian Maritime Ltd, two aluminum vessels for undisclosed clients and one fabrication contract for a longstanding client. The chemical tankers are scheduled for delivery in FY17, while the aluminum vessels will be delivered in 2QFY16. 

• Tanker orders entail financing on Triyards’ part. 

  • We understand the tankers are on a possible tail-heavy payment structure and will entail some financing on Triyards’ part. We estimate FY16 net gearing to rise to 59% as the project is executed alongside other orders. However, we do not anticipate this to be a critical issue, given Triyards’ strong cash flow and excellent clientele mix. 

• FY16 capex at US$20m. 

  • Management has guided US$20m capex for FY16, comprising a US$3.5m upgrade to an office building at its Vung Tau yard, and the remainder for various enhancements to its five yards across the globe. Given Triyards’ cash balance and strong cashflow, the larger-than-expected capex should not be an issue. 



EARNINGS REVISION/RISK 


• Assume order wins of US$340m-350m for FY16-18. 


  • We assume contract wins of US$350m for FY16, and US$340m each for FY17 and FY18. These are assumedly low, given its strong contract win performance. However, demand will be dampened as the downturn prolongs, so we take a highly conservative view for now. 

• Adjusting FY16 and FY17 earnings forecasts by -19% and 4%. 

  • We adjust our earnings forecasts for FY16 downwards to US$32.1m (-19%) and FY17’s upwards to US$37.6m (+4%) on adjustment in revenue recognition schedule and higher interest costs. A large part of our FY16 change stems from higher interest costs, which we anticipate to rise from US$1.9m to US$6.5m for FY16. We also introduce FY18 net profit forecast of US$35.5m. 



VALUATION/RECOMMENDATION 


• Maintain BUY with a higher target price of S$0.88. 

  • We roll forward our target price to S$0.88, based on 0.75x FY17F P/B and assuming Brent crude of US$60/bbl. Our P/B benchmark is based on a regression of oil price vs the historical P/B for the sector. 
  • With a 15% ROE and undemanding valuations of 2.7x FY17F PE and 0.3x FY17F P/B, Triyards is a gem that stands out among its peers’ average of 12% ROE. 
  • Even at current valuations, the stock is trading at 0.4x current P/B vs the sector’s 0.6x P/B, unjustified despite its stellar financial performance. 



SHARE PRICE CATALYST 

  • Contract wins. 
  • Increase in Brent oil price, spurring more order wins.



Foo Zhiwei UOB Kay Hian | Nancy Wei UOB Kay Hian | http://research.uobkayhian.com/ 2015-10-21
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.88 Up 0.81


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