VARD HOLDINGS LIMITED
MS7.SI
Vard Holdings - Dissecting the business plan
- YTD 2016 contract wins stronger than expected on the back of exploration cruise vessel boom.
- But new target markets could prove insufficient in size to offset the dip in offshore vessel orders.
- Maintain HOLD with adjusted TP of S$0.18.
Our market sizing estimates indicate
- Vard’s new business plan is unlikely to catalyse a recovery to pre-2015 levels.
- Comparing the addressable market for offshore vessels from 2010-2014 against the 5-year forward market size of Vard’s five new target segments, we find that the new markets, at around US$11.4bn in value, are only 14% the size of what the offshore vessel market used to be. Thus, while YTD 2016 orders of ~NOK9.1bn (including LOIs) seem large compared to 2015’s NOK3.5bn in order wins, we believe this momentum is unlikely to be sustained and that Vard’s plan to hit NOK12-13bn in revenues by 2020 is a stretch given the limited market size of the new segments and the dearth of offshore newbuilding.
- We are forecasting NOK6bn in order wins per year going forward, compared to the average of NOK11.3bn during the peak years of 2010-2014.
2Q16 profits in the red again.
- Vard reported NOK53m of losses in 2Q16, versus profits of NOK37m in 1Q16.
- Revenues were up 9% q-o-q, but EBITDA margins fell from 2.8% in 1Q16 to 0.5% in 2Q16 on the back of higher materials and subcontracting costs, restructuring costs related to the shutdown of the Niteroi yard in Brazil as well as higher provisions for bad debt.
- Given that costs remain stubbornly high and orderbook is difficult to sustain, we are forecasting losses of NOK122m/ 65m in FY16/FY17.
Maintain HOLD with TP of S$0.18.
- Vard is trading in line with its peer average of 0.32x, but we think it deserves a slight premium, similar to Triyards, which has diversified and is trading at ~0.4x.
- We maintain our peg of 0.4x FY16 P/BV, with a revised TP of S$0.18, reflecting changes in book value and exchange rates.
Key Risks
- Order cancellations remain the key risk; offshore support vessels (OSVs) account for half of Vard’s orderbook in terms of numbers.
- Lower-for-longer oil price is another key macro risks.
Suvro SARKAR
DBS Vickers
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http://www.dbsvickers.com/
2016-07-22
DBS Vickers
SGX Stock
Analyst Report
0.180
Down
0.187
