TRIYARDS HOLDINGS LIMITED
RC5.SI
Triyards Holdings (ETL SP) 1QFY16: Beyond The Headlines, Net Profit Was Actually Up 42% yoy
- Triyards’ 1QFY16 earnings came in at US$6.2m, up 42% yoy after adjusting for oneoffs in 1QFY15.
- Stripping out our contract win assumption puts Triyards’ earnings in-line with our expectation. Its orderbook remained unchanged at US$564m from last year, as an additional US$80m of contract wins were added.
- Earnings visibility is still maintained at almost two years. New order wins are starting to become challenging.
- We tweak our earnings estimate by 0.3-2.8%. Target price remains unchanged at S$0.88.
- Maintain BUY.
RESULTS
1QFY16 net profit up 42% yoy after adjusting for one-offs.
- Triyards’ reported a 1QFY16 net profit of US$6.2m, representing 19% of our previous full-year estimate of US$32m. This was attributable to two factors:
- timing difference in revenue recognition, and
- our earnings forecast incorporates an additional US$170m of unannounced contract wins for FY16.
- Stripping out our contract wins assumption, 1QFY16 net profit would have accounted for 23% of our estimate, placing it in-line with our expectation. After adjusting 1QFY15’s net profit for US$3.9m in negative goodwill, the 1QFY16 results reflect a 42% yoy increase in net profit.
Gross margin down 4.3ppt to 18.7%.
- Gross profit margin fell 4.3ppt, from 22.9% in 1QFY15 to 18.7% in 1QFY16. The decline was due to revenue recognition of a mix of projects with lower gross margins.
- We expect gross margins to fluctuate between 18- 20% for FY16 as different projects come on stream.
Admin costs down 23% qoq to US$6.7m.
- On a yoy basis, administrative expense was flat, but down 23% on a qoq basis. It is expected to remain at this level for the rest of FY16, implying a 10% decline in admin expenses. Net profit is expected to see a slight boost as a result.
Net gearing increases to 37.7%.
- Net gearing rose from 29.8% in end-FY15 to 37.7% in 1QFY16, due to higher bills payable to banks. We expect Triyards’ net gearing to rise to an estimated 55% for FY16 as they draw down on additional working capital loans for the progress of their projects, attributable to the three chemical tankers which are on a tailheavy payment structure.
STOCK IMPACT
Net orderbook of US$564m guarantees earnings visibility through FY17.
- As at endDec 15, Triyards’ net orderbook remained unchanged at US$564m from Oct 15. The orderbook includes the additional US$80m of contracts announced between Nov and Dec 15, thereby implying US$27m of orderbook burn per month.
- As it stands, Triyards still has earnings visibility of 21 months or up to end FY17.
Announces US$80m of contract wins since Oct 15.
- Though no new contract wins were announced together with its 1QFY16 results, Triyards had separately announced in three separate announcements over Nov 15 and Dec 15, contract wins totaling US$80m.
- The contracts were all with new clients, displaying Triyards’ hallmark dynamic attribute. This included four escort tugs for Greenbay Marine, one Research Vessel for Taiwan Ocean Research Institute, two oil barges for CPC Corporation and three aluminum vessels to unspecified clients.
EARNINGS REVISION/RISK
Maintain FY16 contract win assumption of US$350m.
- Ytd, Triyards has secured US$180m of contracts, representing 51% of our full-year forecast.
- With the market for new orders becoming increasingly challenging as each quarter passes with no oil price recovery, we maintain our FY16 contract win assumption of US$350m for now.
- We however adjust our contract win assumptions for FY17 and FY18 to US$350m and US$400m respectively.
Tweak FY16/17 earnings by 0.3-2.8%.
- We tweak our FY16-17 earnings estimates to US$33m (+2.8%) and US$38m (0.3%) respectively, adjusting for timing issues in orderbook recognition and lowering gross margin assumption from 19% to 18%.
- Our FY18 earnings estimate was adjusted downwards to US$30m primarily due to a shift in timing of revenue recognition.
VALUATION/RECOMMENDATION
Maintain BUY and target price of S$0.88.
- We maintain our target price of S$0.88, benchmarked to P/B of 0.75x, premised on Brent crude assumption of US$60/bbl.
- Given the current oil price levels, we could arguably benchmark it at the current sector P/B of 0.5x, which would provide a target price of S$0.59 and still yield an upside of 20%.
- Based on its existing orderbook alone, Triyards is only trading at 4.2x FY16 PE, below the sector average FY16 PE of 6.9x, yet returning an FY16 ROE of 15% vs peers’ 8%.
- Maintain BUY.
SHARE PRICE CATALYST
- Contract wins.
- Increase in Brent oil price, spurring more order wins.
Foo Zhiwei
UOB Kay Hian
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Nancy Wei
UOB Kay Hian
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http://research.uobkayhian.com/
2016-01-11
UOB Kay Hian
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