1Q14 results in line with PATMI of NOK92m making up 15% of our and 16% of consensus forecasts.

EBITDA margin saw a third consecutive quarter of improvement to 6.4%.

Selldown unwarranted. Maintain BUY and TP of SGD1.07, based on 1.4x FY14E P/BV, 1SD below its historical mean.

What’s New

Vard reported 1Q14 PATMI of NOK92m (-51.1% YoY, -18.6% QoQ), meeting 15% of our and 16% of consensus forecasts. Despite the sharp decline, we consider the results in line with our expectations and anticipate improvements over the next few quarters. On a pre-tax basis, EBT rose 36.8% QoQ as there was a NOK19m tax write-back in 4Q13. More importantly, EBITDA margin continued to climb higher for the third consecutive quarter, rising 1.3ppt to 6.4%.

What’s Our View

Following yesterday’s non-deal roadshow for Vard, we are even more confident of the company’s recovery. No further provisions were taken in the Niteroi yard while the Promar yard is ramping up according to plan. Management guided for long-term sustainable EBITDA margin of 8-10%, which is in line with our forecasts of 7.9%/9.8% for FY14E/15E.

1Q14 saw an exceptionally high level of order intake of NOK5.5b, achieving 43% of our full-year forecast of NOK12.8b. While this cannot be extrapolated, management is still optimistic on further order wins. Net orderbook is at a five-year high of NOK21.8b, providing strong earnings visibility for the next two years and support for the anticipated recovery. Vard is most positive on the OSCV market, citing opportunities even for AHTS and PSV vessels.

We keep our forecasts intact and view the selldown on the stock as unwarranted. Maintain BUY and TP of SGD1.07, pegged to 1.4x FY14E P/BV, which is 1SD below its historical mean

Source: Maybank Kim Eng Research - 30 Apr 2014