• Results were largely in line
• Brazil yards still causing a drag
• Optimism on new order wins

FY13 results were within our expectations

Vard Holdings Limited (VARD) reported a 8.9% YoY decline in its 4Q13 PATMI to NOK113m despite a 22.5% jump in revenue to NOK3.1b. For FY13, revenue came in flat (+0.2%) at NOK11.2b and was 3.7% above our forecast. PATMI slumped 55.6% to NOK357m, but was within our expectations (1.0% below our FY13 estimate). However, this fell short of Bloomberg consensus forecast by 7.1%. Another negative surprise came from VARD’s decision not to declare any dividends in FY13. We were expecting a S$0.02 first and final DPS. Management attributed this to an extraordinarily high dividend payout in FY12, record high investments in 2013 and a sharp fall in profitability.

Continued losses in Brazil

VARD highlighted that its Niteroi shipyard in Brazil continued to face further delays and cost overruns, due to manpower and supplier issues. Although the loss quantum at this yard was not disclosed, we estimate that it could fall within a ballpark range of NOK100-200m. Its other yard in Brazil, Promar, still experienced start-up losses, but we believe losses have narrowed as operations are ramping up. Meanwhile, operations were stable at its shipyards in Europe and Vietnam.

Robust orders outlook

On a positive note, VARD closed the year with a healthy order book value of NOK19.4b (end FY12: NOK15.1b), after clinching NOK14.2b of new orders in 2013. This was VARD’s highest order intake since 2007. Management remains optimistic on its new order wins outlook in 2014, driven by higher value vessels, especially within the subsea support and construction vessel segment.

Maintain HOLD

We bump up our FY14 revenue projection by 8.5% on higher order win assumptions. However, we are keeping our PATMI forecast intact, as we deem it prudent to adopt more conservative margin assumptions, given the uncertainties remaining over VARD’s Brazilian operations. Maintain HOLD and S$0.84 fair value estimate, pegged to 8x FY14F EPS.

Source: OCBC Research - 26 Feb 2014