By Low Pei Han
Fri, 14 Aug 2009, 18:28:23 SGT

Swiber Holdings Ltd (Swiber) reported a 11% YoY fall in revenue to US$110.8m and a 18.7% drop in net attributable profit to US$16.9m for 2Q09. Results were largely in line with expectations as 1H09 revenue and net profit account for 55% of our full-year estimates. Although gross margins were lower compared to 2Q08, we are heartened to find that the group has regained margin stability ever since registering a loss in 4Q08 due to cost overruns. Though margins have stabilized, they are still lower than the historically higher margins that Swiber is used to but the group is exploring ways to enhance cost efficiencies. Swiber secured contracts totaling about US$93m in 2Q09, and its order book stands at US$509m. We have raised our FY09 and FY10 estimates with higher margin and stronger order flow assumptions and our valuation is now based on 8x blended FY09/10F earnings (previously 7x FY09F PER). As such our fair value estimate is raised to S$0.96 and we upgrade our rating to HOLD.

Results largely in line with expectations. Swiber Holdings Ltd (Swiber) reported a 11% YoY fall in revenue to US$110.8m and a 18.7% drop in net attributable profit to US$16.9m for 2Q09. Results were largely in line with expectations as 1H09 revenue and net profit account for 55% of our full-year estimates. Revenue was lower due to completion of projects in Malaysia (four projects were being executed in 2Q09 compared to six projects in 2Q08). Although gross margins were lower at 21.5% in 2Q09 compared to 26% in 2Q08, we are heartened to find that the group has regained margin stability ever since registering a loss in 4Q08 due to cost overruns. Other operating income rose by US$4.5m from US$1.4m in 2Q08 due to gain on disposal of assets arising mainly from the sale of vessels under the sale and leaseback arrangements.

Lower margins due to subcontracting costs. Though margins have stabilized, they are still lower than its historically better margins (Exhibit 1). Gross profit in 2Q09 was affected by fabrication costs which was subcontracted, though the three construction vessels (Swiber Supporter, Concorde and Victorious) which the group took delivery in 1Q09 helped to reduce reliance on third party vessels. Swiber is hence exploring ways to achieve cost efficiencies and an example is its partnership with CUEL which performs offshore vessel fabrication.

Net gearing dropped despite more bank loans. Net gearing fell from 0.94x as at 31 Mar 09 to 0.75x as at 30 Jun 09, aided by net proceeds of US$49.8m from a share placement in June this year. However, we note that short term debt has risen from US$42.5m on 31 Mar 09 to US$66m on 30 Jun 09, and long term debt from US$189.8m to US$210.4m.

Upgrade to HOLD. Swiber secured offshore contracts totaling about US$93m in 2Q09, and its order book is marginally lower at US$509m compared to US$515m as at 31 Mar 09 (Exhibit 2). Moreover we note the delivery plans for two vessels are delayed, probably portending reduced work momentum (Exhibit 3). Despite this, we have raised our FY09 and FY10 estimates with higher margin and order flow assumptions. Our valuation is now based on 8x blended FY09/10F core earnings (previously 7x FY09F PER). As such our fair value estimate is raised to S$0.96 and we upgrade our rating to HOLD.