Triyards Holdings - OCBC Investment 2017-01-09: Trading at too low a valuation

TRIYARDS HOLDINGS LIMITED RC5.SI

Triyards Holdings - Trading at too low a valuation

Triyards Holdings reported a 17% YoY rise in revenue to US$91.2m in 1QFY17 but saw a 28% decline in gross profit to US$10.5m due to lower gross profit margins from a different mix of projects and a competitive market environment.
Indeed gross profit margin was 11.5% in the quarter compared to 18.7% in 1QFY16 and 12.9% in 4QFY16; we believe that management’s aim is to sustain yard utilization while earning decent profits under this tough operating environment, albeit with lower margins.
Along with higher financial expenses, the company saw a 66% drop (-7.5% QoQ) in net profit to US$2.1m for the quarter.
Borrowings were higher due to increased working capital required for major projects reaching an advanced stage of construction.
Net gearing was 0.66x in the quarter while interest coverage (EBITDA/Interest exp) was 4.1x. We understand that core debt used to finance assets of the group (not working capital) is about US$12m.

Meanwhile, the current net orderbook stood at US$352.5m, compared to US$422m a quarter ago.
Liftboats account for 52% of this figure, followed by 33% from Strategic Marine and nonO&G related orders, 10% from multi-purpose support vessels and the remaining 5% from chemical tankers.

Despite the tough operating environment, the group has been profitable every quarter, which is quite commendable. Though earnings may be lacklustre for the group going forward, the stock is now trading close to 0.3x book, which we feel is too low for a company that is unlikely to make significant impairments in the foreseeable future.
We note that Swissco (under judicial management) only owes a remaining few million to Triyards for a liftboat. In an extreme scenario in which all trade receivables, inventories and WIP are wiped out, this would leave half of total assets remaining.
Based on a conservative 0.55x FY17F book multiple, we raise our FV to S$0.47 and upgrade our rating to BUY.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-01-09

OCBC Investment SGX Stock Analyst Report BUY Upgrade HOLD 0.47 Up 0.350