Triyards Holdings - OCBC Investment 2017-03-15: Awaiting more clarity

Triyards Holdings - OCBC Investment 2017-03-15: Awaiting more clarity TRIYARDS HOLDINGS LIMITED RC5.SI

Triyards Holdings - Awaiting more clarity

  • Wins two ferry orders.
  • Low valuations.
  • Likely due to Ezra overhang.

Secured two more ferry orders 

  • Triyards Holdings recently announced that it has won contracts worth US$20.64m for the fabrication of two passenger ferries. They were secured by Strategic Marine, a wholly owned subsidiary, from two ferry operators. 
  • Pentland Ferries, a Scottish ferry operator, awarded the order to build an 85m long passenger ferry which is scheduled for delivery in 1H18. The second order was awarded by an Asian ferry operator for delivery in early 2018. 
  • Indeed the group has been diversifying its order mix, working on vessels such as tankers, research vessels and passenger ferries. 
  • Out of its net order book of US$352.5m as of 1QFY17 results, liftboats account for 52%, followed by 33% from Strategic Marine (excludes the recent new orders) and non-O&G related orders, 10% from multipurpose support vessels and the remaining 5% from chemical tankers.

Await clarity regarding impact from Ezra 

  • Despite the tough operating environment, the group has been profitable every quarter, which is quite commendable. 
  • Going forward, margins may remain under pressure with the competitive environment. Though the stock is now trading at only close to 0.3x book, investors may be awaiting further clarity on the impact that Triyards may face from an Ezra default. 
  • So far, we estimate that Triyards would suffer a net US$6.8m impact from balances due from/to related and affiliated companies on its balance sheet. The group has also issued corporate guarantees for joint banking facilities it has with Ezra, with a maximum liability of US$30m. 
  • On a more positive note, Ezra does not account for any part of Triyards’ order book. 
  • Finally, Ezra’s 61% stake in Triyards is also pledged to two banks, so there should be a change in ownership in the event that Ezra defaults. 
  • As there could be further potential impact beyond what we know and estimate, we lower our fair value estimate to S$0.345 (based on 0.4x FY17F book), and downgrade our rating to HOLD, pending more clarity relating to Ezra.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-03-15
OCBC Investment SGX Stock Analyst Report HOLD Downgrade BUY 0.345 Down 0.470