MERMAID MARITIME PUBLIC CO LTD
DU4.SI
Mermaid Maritime - Losing its shine
Subsea revenues and profits likely to fall steeply in FY16/17.
- Mermaid’s subsea orderbook has declined sharply from a high of US$473m at end- FY14 to US$212m as of end-3Q15.
- Adopting a less aggressive stance amidst the oil price decline, management has decided to focus on fleet utilisation and to return three of its long-term chartered-in vessels early.
- Despite the fact that Mermaid serves the more resilient offshore maintenance market, weak order flows mean that subsea revenue and profit targets are now substantially lower.
- This will be further compounded by losses from the niche tender drilling segment, stemming from two off-hire tender rigs, and potential lack of contracts for the newbuild ones.
AOD jack-up rig contribution vulnerable to rate cuts.
- Contributions from associate Asia Offshore Drilling (AOD) has been a key pillar of earnings since FY14, but as the charters for the 3 rigs come up for renewal in 2016, we are expecting steep cuts in day rates owing to the global glut in supply of rigs.
- Non-renewal of contracts cannot be ruled out, either.
Asset impairments add to the gloom.
- Given the lack of subsea order wins and poor outlook for drilling rigs, we cut FY16 earnings estimate by 98% to breakeven levels and expect losses in FY17.
- Management has already guided for significant provisions for impairment of assets in FY15 and further provisions cannot be ruled out.
Valuation:
- Our TP is revised down to S$0.09 (0.2x FY16F P/BV) on the back of lower earnings and a drop in book value following expected asset impairments.
- Investor sentiment in this space remains weak and we downgrade our call to FULLY VALUED.
Key Risks to Our View:
- Only a sharp spike in the oil price – albeit unlikely in our view – could result in some respite from the gloom surrounding the offshore services industry currently.
Suvro SARKAR
DBS Vickers
|
Singapore Research Team
DBS Vickers
|
http://www.dbsvickers.com/
2016-02-16
0.09
Down
0.27
