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Vard Holdings - DBS Research 2016-03-01: New order wins will be crucial

Vard Holdings - DBS Research 2016-03-01: New order wins will be crucial VARD HOLDINGS LIMITED MS7.SI 

Vard Holdings - New order wins will be crucial 

  • 4Q15 net loss of NOK83m largely in line 
  • Dearth of order wins; orderbook has fallen 43% 
  • Plans to diversify into new markets to counter offshore slump, but unlikely to turnaround soon 


• More red ink in 4Q15. 

  • 4Q15 recorded net losses of NOK83m, bringing full-year losses to NOK603m, largely dragged down by poor execution on the LPG carrier contracts at the Brazilian yards, which led to steep provisions for cost overruns and penalties for delays in delivery. 

• Can new target markets counter a declining orderbook? 

  • New order wins of NOK3.6bn in FY15 was a steep fall from previous years’ levels, in line with the oil price decline. Hence, orderbook declined from NOK17.7bn at end-FY14 to NOK10.2bn at end-FY15, less than 1x book-to-bill. 
  • To counter this trend, Vard has plans to diversify into new product segments such as aquaculture vessels, offshore wind vessels and patrol vessels, apart from securing more work from parent Fincantieri Group. However, given that there is limited evidence of increased workload from its parent group or contracts from new target markets, we choose to remain conservative on new order win assumptions for FY16/17. 

• Losses likely to continue. 

  • While management is looking to achieve positive EBITDA margins in FY16, we are more bearish, given the expected fall in revenues and lack of order wins, amidst challenging industry conditions. 
  • Losses in FY16/17F may be lower than FY15 levels, but we believe there is no big turnaround in sight for Vard in the near term. 

Valuation: 

  • We maintain our FULLY VALUED call with a lower TP of S$0.13, pegged to 0.3x P/B. 
  • Despite the c.40% fall in share price YTD-2016, we would avoid the stock until there is more visibility on the extent of further provisions on the LPG carrier projects in Brazil, and more confidence in the new business plans bearing fruit in the form of an orderbook boost. 

Key Risks to Our View: 

  • Faster than expected order wins from the new target markets described above or a turnaround in Brazilian operations could provide upside risk to our call. 
  • A sharp rise in oil prices is another scenario that could cause a re-rating of the stock.



Suvro SARKAR DBS Vickers | http://www.dbsvickers.com/ 2016-03-01
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 0.13 Down 0.15


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