2QFY9/14 PATMI plunged 60.7% QoQ to USD5.2m, coming in below our expectations.

Subsea utilisation weak due to seasonality and vessel mobilisation. Management expects 2HFY9/14 to catch up.

Turnaround story still intact. Maintain BUY with lower TP of SGD0.59, pegged to 14x FY9/14E P/E.

What’s New

Mermaid reported a 60.7% QoQ plunge in 2QFY9/14 PATMI to USD5.2m, falling short of our expectations. PATMI for 1HFY9/14 thus made up just 34% of our initial full-year forecast. Performance at the subsea segment was weak, with utilisation rate tumbling to 53.0% from 85.9% in 1QFY9/14 (2QFY9/13: 53.0%). The weakness was attributed to seasonal factors which resulted in lower work activities in Southeast Asia and South China Sea. In addition, some vessels were in-between jobs. Operating loss totalled USD1.8m but PATMI was lifted by strong contributions from associate Asia Offshore Drilling (AOD).

What’s Our View

Although we had anticipated a soft quarter, the steep drop in utilisation rate still came as a surprise. Reflecting the weak profitability, operating cash flow fell sequentially from USD18.0m to USD2.1m in 2QFY9/14. On a more positive note, AOD reprised its sturdy performance with a 20.4% QoQ jump in net contributions. Management expects 2HFY9/14 to be better, propelled by a robust USD750m orderbook (as at 1 Jan 2014), of which about USD250m is expected to be recognised this financial year.

The weak results show our previous forecasts to be too optimistic. We cut our FY9/14E/15E/16E net profit by 11%/9%/8% and lower FY9/14E utilisation assumption from 89% to 80%. We also trim our TP from SGD0.67 to SGD0.59, still pegged to 14x FY9/14E P/E. All said, we believe Mermaid’s turnaround story is intact as it grows into an integrated oilfield services player. Maintain BUY.  

Source: Maybank Kim Eng Research - 15 May 2014