3Q13 affected by higher taxes. 3Q13 disappointed with net profit of USD7.7m (+5% YoY, +84% QoQ) on revenue of USD274.2m (3% YoY, +13% QoQ). Tax charges were higher than expected due to the mix of projects in various jurisdictions with a higher tax regime. 9M13 net profit made up 63% of our initial FY13 forecast. 3Q13 gross margin weakened to 14.2% (2Q13: 15.3%, 3Q12: 14.1%).

Slow order intake could slow FY14 earnings. Order win momentum has been weak with no new orders secured in 3Q13. With YTD order intake of only USD588m, outstanding order book has dropped to USD900m (from USD1.2b in Aug 13); its lowest in more than two years. Swiber attributed this to bidding schedule delays and contract award timing. It is tendering for more than USD2b worth of contracts: Mexico (USD250m), Brunei (USD300m), Indonesia (>USD1b) and India (USD400-500m), which could help replenish the order book in the months to come. We are less optimistic on the speed of replenishment, given that there is less than two months to go for the year and cut FY13 order win assumption to USD0.88b (from USD1.0b). As such, we turn more cautious on its earnings prospects.

Sale of Kreuz to focus on offshore EPIC business. After the proposed disposal of Kreuz, Swiber aims to focus on growing its EPIC offshore construction business. It wants to eventually acquire deep water capabilities to move up the value chain from its shallow-water focus currently. As such, the net cash proceeds of SGD127m may come in handy to enhance its assets (the Kaizen 4000 construction vessel) other than to pare down debt. However, we are cautious on the initial execution risks that it may face.

Downgrade to Hold, TP SGD0.69. We cut our FY13-15 forecasts by 7-17% due to (1) toned down order win expectations; and (2) lower gross margin assumptions (cut by 0.5-0.8ppt). Consequently, our SOTP-based TP is slashed to SGD0.69 due to the earnings cut. Catalyst: Stronger-than-expected order intake.

Source: Maybank Kim Eng Research - 14 Nov 2013