Premium OSV builder at deep discount. We like Vard for its leadership position in the premium OSV market. Recent sell-down is unwarranted and we believe that stronger-than-expected order wins this year would drive positive re-rating. We raise our FY13F order win forecast from NOK9.7b to NOK11.5b. At current valuations, despite our below-market FY13F forecast, the stock would be trading at only 7.2x PER. Maintain Buy with TP of SGD1.65.

Results within our expectations. 1Q13 revenue of NOK2.7b (-2% YoY, +9% QoQ) and net profit of NOK188m (-30% YoY, +52% QoQ) were within our expectations but below consensus. Net profit makes up 23% of our FY13F forecast, which was the lowest in the street. 1Q13 EBITDA margin fell to 11.1% (4Q12:11.4%, 1Q12:14.0%) due to higher cost in Brazil. We expect consensus to cut FY13F earnings forecast, but we point out that current year earnings is the repercussion of weakened ordering activities from 2H12 and Niteroi yard issues. These issues have been flagged earlier and should have been anticipated.

Brazil issues to stabilise by end-2013. There are 5 more vessels to be delivered from Niteroi yard, of which one would be delivered by next week. While higher cost has dragged down overall group profitability, we estimate the effect to be restricted to only 1-2 ppts in EBITDA margins. Margins also appears to have stabilised on a QoQ basis. Actions have been taken to reorganise production and reduce indirect cost and we should expect higher margins in FY14F vis-à-vis FY13F.

Positive order win outlook. Net orderbook stood at NOK15.5b (46 vessels) as at end 1Q13 and we estimate YTD order wins at NOK3.7b. Vard reiterated its optimistic outlook in order wins this year for OSCVs. We raise FY13F order win expectations from NOK9.7b to NOK11.5b.

Reiterate Buy, stock oversold. Current valuations are unjustifiably low for a premium OSV builder with ROE in excess of 20%, strong recovery growth and attractive dividend yield of 5-6%. Reiterate Buy with TP of SGD1.65, pegged to 9x PER on average FY13-15F EPS. Marginal change to TP due to higher order wins assumption and NOK/SGD exchange rate adjustments.

Source: Maybank Kim Eng Research - 15 May 2013