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Triyards Holdings - UOB Kay Hian 2016-04-01: Share Pledge And Liftboat Order Delays To Affect Performance

Triyards Holdings - UOB Kay Hian 2016-04-01: Share Pledge And Liftboat Order Delays To Affect Performance TRIYARDS HOLDINGS LIMITED RC5.SI 

Triyards Holdings (ETL SP) - Share Pledge And Liftboat Order Delays To Affect Performance 

  • Liftboat orders at Triyards are being impacted as customers delay deliveries in light of the weak oil price environment. 
  • Notably, the sizeable US$175m liftboat contract’s recognition has been pushed into FY17 from FY16. 
  • Ezra’s pledge of its shareholdings in Triyards will likely hinder share price performance. 
  • We reduce our FY16 earnings estimate by 13%. 
  • Cut target price by 32% to S$0.47 and downgrade to HOLD. Entry price: S$0.38 or below. 


WHAT’S NEW 


• Liftboat orders delayed. 

  • Our channel check indicates that several liftboat orders have been delayed. A large part of this arises from customer Ezion, who had in its FY15 earnings briefing said that it was delaying several newbuild liftboat orders. 
  • In particular, the US$175m contract for two BH450 liftboats, awarded by an Asian client in Jul 15, has been delayed to 1H18. 
  • While the customer did not ask for a deferral outright, the fact that construction had not begun by end-February implies a delay. These two BH450 liftboat orders were originally slated for delivery in 2H17, and we had expected a construction start by end Feb-16 at the latest for Triyards to meet the deadline. 

• Pledged as collateral. 

  • In an announcement dated 22 Mar 16, Ezra drew down a S$100m secured term loan facility to pay off the S$95m bond due 21 Mar 16. This was pledged against its shareholdings in EMAS Offshore (EMAS) and Triyards. 
  • Ezra currently owns 75.3% and 60.9% of EMAS and Triyards respectively. 


STOCK IMPACT 


• Earnings deferred to the right. 

  • The bulk of the earnings deferral comes from the delayed BH450 orders. 
  • For the liftboats orders under Ezion which have been delayed, most are near completion and are currently undergoing variation orders (VOs). Contract values of the VOs are small, and overall revenue impact from those orders are minimal. 
  • The BH450s however, make up 27% of our FY16 revenue estimate. The delay thus shifts over 80% of that revenue into FY17, lowering our earnings estimate for FY16 by 13%. 

• Long-term share overhang from Ezra’s pledging of shares. 

  • The pledging of shares creates a long-term share price overhang for Triyards. With the subsea and offshore markets severely challenged, Ezra’s earnings will remain poor. This means that the pledge is unlikely to be withdrawn till much later after the oil & gas (O&G) industry recovers. 

• Business remains fundamentally sound. 

  • Despite the earnings deferral, Triyards’ orderbook of US$564m (as of end-15) remains intact, with earnings visibility continuing into FY18. 
  • Our estimated FY17F book value per share (BVPS) remaining largely unchanged at S$1.19 vs S$1.18 previously, despite the deferral. 
  • Business remains fundamentally sound, though we note rising challenges in the market with regard to securing contracts. 


EARNINGS REVISION/RISK 


• Reduce FY16 earnings by 13% to US$29m. 

  • As a result of the deferment, earnings have been shifted to the right and our FY16 net profit estimate has been cut by 13% to US$29m. Our earnings forecasts for FY17 and FY18 have correspondingly risen to US$43m (+13%) and US$33m (+9%) respectively. 

• Keeping FY16-18 contract win assumptions of US$350m-400m. 

  • As of 1QFY16, Triyards had secured US$180m of our US$350m contract win assumption. We thus keep our FY16 assumption unchanged, and maintain our FY17 and FY18 contract win assumptions of US$350m and US$400m respectively. This is conservative given the challenging tendering environment. 

• FY18 earnings to decline on lower contract wins. 

  • As our total FY16-18 contract win assumption is lower than FY15’s contract win of US$500m, earnings will decline after FY17 as FY15’s orders becomes fully recognised. We estimate close to 90% of Triyard’s end-15 US$564m orderbook will be recognised by the end of FY17. 


VALUATION/RECOMMENDATION 

  • Downgrade to HOLD and cut target price to S$0.47, pegged a lower 0.4x FY17F P/B, (from 0.6x FY17F P/B). 
  • This is in line with the 1-yr forward sector P/B for regional OSV shipyards. As the 18% implied upside falls under our mandate of a > 25% return for small-mid caps, we downgrade the stock to HOLD. 
  • Poor sentiment for the offshore marine sector coupled with the share pledge overhang will likely result in lacklustre share price performance for the year. 
  • Entry price: S$0.38 and below. 
  • Triyards will announce its 2QFY16 results next Thursday, 7 April. 


SHARE PRICE CATALYST 

  • Contract wins. 
  • Increase in Brent price. 
  • Positive developments for parent Ezra.



Foo Zhiwei UOB Kay Hian | Nancy Wei UOB Kay Hian | http://research.uobkayhian.com/ 2016-04-01
UOB Kay Hian SGX Stock Analyst Report HOLD Downgrade BUY 0.47 Down 0.69


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