VARD Holdings - OCBC Investment 2017-07-26: Net Loss Of NOK 69m In 2Q17

VARD Holdings - OCBC Investment 2017-07-26: Net Loss Of NOK 69m In 2Q17 VARD HOLDINGS LIMITED MS7.SI

VARD Holdings - Net Loss Of NOK 69m In 2Q17

  • Few surprises.
  • Varying workload across yards.
  • Cease coverage.

Results within expectations 

  • VARD Holdings saw a 4% YoY fall in revenue to NOK 2,128m and an operating loss of NOK 4m in 2Q17, leading to a net loss of NOK 69m for the quarter. This is similar to 2Q16, when the company reported net loss of NOK 67m then.
  • Results were within expectations, with 1H17 revenue and net loss accounting for 51% and 58% of our full year estimates. Compared to 1Q17, revenue was 20% higher but net loss was wider; 1Q17 saw net loss of NOK 25m.

Operational updates across geographical regions 

  • In Norway, the design and procurement phases for cruise projects are on track, and the focus is on mobilizing adequate resources and strengthening cooperation with Fincantieri. Meanwhile, Vard Brevik is developing LNG-related business opportunities. 
  • In Romania, the phase of new investments at Vard Tulcea is close to completion, while Vietnam continues to see stable operations. 
  • In Brazil, the group now has full control of Vard Promar, providing for an amicable termination of the partnership with PJMR. 
  • Overall, the key operational challenge for the near term is managing varying workload across the different yards – “very high utilization” in Romania, low and variable load in Norway, and decreasing workload in Brazil. 
  • Meanwhile, risks relating to the offshore project portfolio remains (nine offshore vessels out of 44 vessels in order book). The group also has three offshore vessels (2 PSVs, 1 DSV that is ex-Harkand) in its balance sheet but these are not under the orderbook.

Cease coverage 

  • At the end of 2Q17, the order book was NOK 12.88b, up from NOK 12.65b at the end of 2016.
  • Looking ahead, the group will continue to focus on its product portfolio diversification. 
  • Meanwhile the LOI for one exploration cruise vessel (signed in Jan 2017) has expired without resulting in a firm contract. The fisheries and aquaculture markets continue to see high activity, but competition is also strong. 
  • With a reallocation of resources, we are ceasing coverage on the stock.

Low Pei Han CFA OCBC Investment | 2017-07-26
OCBC Investment SGX Stock Analyst Report CEASE Maintain HOLD 99998 Same 0.230