SWISSCO HOLDINGS LIMITED
ADP.SI
Swissco Holdings 3Q15: OSV losses and GOM headache
- 3Q15 core net profit of US$6.1m (-22% yoy/-59% qoq) was below our expectations.
- Dragged by OSVs, the group incurred losses at EBIT level.
- Two of its nine rigs are currently off-hire. We expect another rig to be idle at end-Nov when its contract ends.
- Our base case assumes downtime for four rigs in FY16, implying that the group would still be able to deliver 11% ROE in FY16 and meet its COE.
- Maintain Add. At 0.5x CY16 P/BV, we think that the market is pricing in a very bearish scenario.
3Q15: losses from OSVs and Gulf of Mexico (GOM) headache
- Dragged by the losses from OSVs and two jack-up rigs going off-hire in 3Q15 (both deployed in the Gulf of Mexico), 3Q15 core net profit fell 22% yoy and 59% qoq to US$6.1m.
- 9M15 core net profit formed 77% of our full-year forecast (3Q formed 13%), which we deem below expectations.
- We expect earnings to deteriorate in coming quarters as more rigs go off-hire.
- Incorporating the weaker 3Q results, we cut FY15 core EPS by 10% and slash FY16-17 EPS by 27-35%, mainly for weaker OSV margins.
We estimate that OSVs incurred losses at EBITDA level
- Revenue fell 43% yoy to US$10.4m in 3Q15, mainly due to a sharp drop in offshore support vessel (OSV) turnover, while one of the two wholly-owned jack-up rigs went offhire at end-Jun.
- OSV revenue tumbled yoy to US$5.2m in 3Q15 (3Q14: US$28.2m), while drilling revenue was halved qoq to US$5.2m (2Q15: US$10.7m).
- The group generated US$4.5m EBITDA and our back-of-envelope calculations indicate that OSVs incurred c.US$5m EBITDA loss.
Two of nine rigs are currently off-hire, expect another to be idle at end-Nov when its contract ends
- Share of profits of associates & JVs decreased 14% qoq but rose 1.7x yoy to US$10.7m in 3Q15. The qoq drop was due to one of the jointly-owned rigs going off-hire at end-Sep. Another rig contract is expected to end at end-Nov.
- Management shared that it is tendering for jobs in the Middle East for the idle rigs, the results of which will be known by end-2015.
- The yoy increase was due to four additional rigs being acquired on jointly-owned basis. Headline net gearing improved to 0.65x at end-3Q15 (end-FY14: 0.8x).
Pemex woes
- Following the US$10bn net loss in 3Q15 (the 12th consecutive quarter of net loss), Pemex (Mexico’s national oil company) has been scaling back its rig fleet and renegotiating daily rental rates.
- Mexican drillers Grupo-R and Oro Negro were the latest to feel the pinch and they have pushed back their new-build deliveries from Keppel and SMM, respectively.
Valuation call; maintain Add
- At 0.5x CY16 P/BV, we think the market has priced in losses for FY16 and the expectation that all nine rig contracts will be canceled, which we deem too pessimistic.
- Our base case assumes downtime for four of its nine rigs, implying that the group would still be able to deliver 11% ROE in FY16 and meet its COE.
- Maintain Add with an unchanged target price (S$0.52), now based on 1x CY16 P/BV as we roll over to end-2016.
YEO Zhi Bin
CIMB Securities
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http://research.itradecimb.com/
2015-11-10
CIMB Securities
SGX Stock
Analyst Report
0.52
Same
0.52
