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NRA Capital Pte Ltd

Written by: Jacky Lee

Monday 30 Mar 2015

Swiber Holdings – FY14 results briefing

Is the US$1.8bn order book enough?

Swiber trades only at 0.2x PBR and 4x historical PER. Though its valuation is not demanding, we are more concerned over its medium-term debt restructuring process.

Due to the sharp fall in demand in South East Asia last year, Swiber posted a 30% yoy fall in FY14 revenue to US$726.5m and a 65% yoy drop in net profit to US$21.7m. Excluding US$102m one-off gains from the disposal of Kreuz in the year, net loss was around US$80m in FY14.

Given its low utilisation rate, gross profit margin reduced significantly from 16.4% in FY2013 to 2.4% in FY2014. For yoy comparison, its net gearing increased from 0.9x in FY13 to 1.5x in FY14 and cash conversion cycles have increased from 186 days to 234 days.

Key takeaway from results briefing:             

  • Business momentum picked up late last year, three major new contracts were secured between Dec-2014 and Mar-2015.
  • US$710m contract value secured in Dec-14 from West Africa (new client), phase 1 expected to complete in 1Q15 and phase 2 expected to complete in mid-2017.
  • Another two contracts (total US$643m) from its existing client, Oil & Natural Gas Corporation Ltd (ONGC), India. Two projects expected to be completed between 2Q16 and May-17.
  • Swiber's winning bid for the latest India contract was about 40% cheaper than the next bid, however, management is confident to maintain its gross margins between 10-15% due to the lower material costs (including marine jet fuel) and maximizing its asset utilization across geographies.
  • West Africa projects could post gross profit margins of  around 20-30%, though West Africa was a new market, the group is working with its partners there.
  • One of its competitive strength is that Swiber has its own vessels and therefore can save on charter rates from other vessel owners.
  • The group is in the process of tendering for more than US$1.1bn of new contracts in India now.
  • The management tightened up its procurement policy with its major customers.
  • Its current receivables are mainly from its India and Mexica customers.
  • Expect around US$900m in orders will be recognized in this year. Current vessel utilization is around 60-70%, the group intends to improve utilizations by reducing its mobilizations between its project areas (Daman projects and PRP4 are being run at the same time).
  • Intends to dispose its small yard at Tuas. Yard size is insufficient to house its larger vessels and often have to use third party yards.
  • Most vessels have completed docking in 2014 and hence no major docking scheduled for 2015.
  • After the recent US$35m rights issue, management is looking to pay down its USS$95m worth of bonds due in June this year and considering a "term out" for its debt due 2016 and 2017 (total US$455m).

Our view:

At S$0.174, Swiber trades at only at 0.2x PBR and 4x historical PER. Though the valuation is interesting, but we are more concerned over its medium-term debt restructuring process.

After the recent right issue, we believe the short-term US$95m bonds should not be an issue. However, to support its higher order book, additional working capital requirements could further increase its gearing. Financing risk is high at the moment, any default of payment from its customers or unable to secure bank facilities will lead to significant problems. Higher finance costs also could further trample its profit margins. We would relook the company’s investment merit only when the group has clear plans to repay its 2016 and 2017 bonds. 


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