TRIYARDS HOLDINGS LIMITED
RC5.SI
Triyards Holdings (ETL SP) 2QFY16: Results In Line; Secures US$17.8m Contract From New Clients
- Triyards reported a net profit of US$5.3m, up 4% yoy, with 1H16 earnings in line with expectations. The higher earnings were primarily driven by a larger orderbook.
- Net gearing rose to 55% on higher working capital loans.
- Triyards also announced a US$17.8m contract win for four vessels.
- The company remains operationally on track to meet earnings expectations, but we tweak earnings downwards by 1-3%.
- Maintain HOLD with an unchanged target price of S$0.47. Entry price: S$0.38 or below.
RESULTS
Net profit of US$5.3m, in line with expectations.
- Triyards reported a net profit of US$5.3m for 2QFY16, up 3.5% yoy.
- For 1HFY16, the company reported US$11.4m, up approximately 13% after adjusting for a one-off US$3.9m negative goodwill recognised in the prior period.
- 1HFY16 net profit made up 40% of our full-year estimate and was in line with expectations.
- Historically, Triyards reports 40-50% of its full-year profit during their 1H results.
Earnings up mainly on larger orderbook.
- The rise in earnings for 2QFY16 was primarily due to recognition of their larger orderbook. The uptick arose mainly from four liftboats, two MPSVs and three chemical tankers contracts secured last year, as compared with four liftboats recognised in the prior period.
- A significant 32% decline in financial expenses from US$1.7m to US$1.2m was recorded due to timing differences between drawdown and loan repayment. This was however, mostly offset by a US$0.7m loss on the disposal of one of their non-operating properties in Houston.
Gross margin down marginally to 21%.
- Gross margin fell by 1.4ppt from 22.4% to 20.9%, largely due to the project mix. This was within expectations of a 20-22% gross profit margin.
Net gearing up at 55%, from 30% prior.
- As expected, net gearing rose to 55% on higher working capital loans to fund their on-going shipbuilding and fabrication projects. This is compared with 30% as of end-FY15.
STOCK IMPACT
Secures US$17.8m contract win for four vessels.
- Triyards announced contract win of US$17.8m for three wind farm crew transfer vessels and one luxury river cruise vessel. The delivery for the former is expected to be within 2H16, while the latter is expected in 2H17.
- Total orderbook as of end-Feb 16 stood at US$513m, of which we expect 25-30% to be recognised in 2HFY16.
New contract wins show the challenges of the contracting environment.
- Ytd contract win is US$198m, accounting for 57% of our full-year assumption of US$350m. The small notional of their latest win highlights the challenges in securing new work.
- Arguably, the quarter was dampened by low activity during the Chinese New Year holiday season.
- Contracting activity should pick up over 2H16, though we are cognisant that should the environment worsen, we may have to revise down our contract win assumption. Such a revision will mostly impact earnings in FY17 and after.
- We estimate a 1% reduction to earnings for each 1% reduction in our contract win assumption.
Higher net gearing not a serious concern.
- We had earlier indicated in our FY15 results note dated 21 Oct 15 that net gearing was set to rise to as high as 59% due to the drawdown of working capital for their chemical tanker orders. This has come to pass.
- Net gearing may rise a little further as Triyards executes its orderbook, and we revise our estimate to 62% for FY16. This is set to come off as the projects complete and clients pay up.
- We do not see cancellation risks that will jeopardise their cashflow or balance sheet, and therefore do not view the higher net gearing as a serious concern.
No surprises here; execution remains on track.
- Overall, Triyards is executing its projects well and remains on track to meet its project deadlines.
- Delivery dates for its liftboats orders remain mostly unchanged. We do not expect any operational surprises except from the two BH450 liftboats that we had earlier flagged on 1 Apr 16.
- Vessel design changes are holding back construction start of the vessels. Management is hopeful that it can be finalised soon and construction should start earliest by 4Q16.
EARNINGS REVISION/RISK
Tweak FY16-18 earnings forecasts down by 1-3%.
- We tweak our FY16 earnings 2% down to US$28m, from US$29m previously. This adjustment is due to the new contract win and higher interest expense. Earnings for FY17 and FY18 are also affected, and are US$42m (-0.9%) and US$32m (-3%) respectively.
Maintain contract win assumptions of US$350m-400m for FY16-18.
- We maintain our contract win assumption of US$350m for FY16/FY17, and US$400m for FY18 for now. This may be reassessed next quarter given the weak newbuild contracting environment.
VALUATION/RECOMMENDATION
Maintain HOLD, target price unchanged at S$0.47.
- Our target price remains unchanged at S$0.47, based on 0.4x FY17F P/B. This is in line with the 1-year forward sector P/B for regional OSV shipyards.
- Poor sentiment for the offshore marine sector coupled with the share pledge overhang will likely result in lacklustre share price performance for the year, which drives our HOLD call. This is despite the fact that Triyards is operationally sound and remains solidly profitable in the downturn.
- Current valuations imply a 19% upside. Entry price is S$0.38 and below.
SHARE PRICE CATALYST
- Contract wins.
- Increase in Brent price.
- Positive developments for parent Ezra.
Foo Zhiwei
UOB Kay Hian
|
Nancy Wei
UOB Kay Hian
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http://research.uobkayhian.com/
2016-04-08
UOB Kay Hian
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