• Core net loss of US$26m in 1Q14
• Dim outlook for next two quarters
• Already trading half book

Disappointing 1Q14 results

Swiber Holdings reported a 35.6% YoY fall in revenue to US$199.5m but saw a 139.3% increase in net profit to US$48.0m in 1Q14, boosted by a US$95.1m gain on disposal of subsidiaries (Kreuz). Excluding this one-off and a US$20.9m fair value loss on financial liabilities, the group saw a core net loss of US$26.2m in the quarter, below our expectations. The 35.6% YoY (-14.3% QoQ) fall in revenue was due to significant revenue recognition in 1Q13, and recently awarded projects also had not commenced. However, costs remained high, and the group saw a gross profit margin of only 4.5% in the quarter vs 16.1% a year earlier.

2Q and 3Q likely to be lacklustre as well

Looking ahead, we expect weak results for the next two quarters, unless the group clinches contracts soon with an immediate start date. Earnings may pick up, however, in 4Q14, which is when a significant portion of projects in its current order book of US$650m will commence. Meanwhile, it is imperative that the group continues winning contracts given its significant overheads. Net gearing has also increased from 0.9x in end FY13 to 1.3x in 1Q14, as the group took on finance leases to buy back a vessel that was previously on a sale and leaseback arrangement.

Receivables creep up

Besides the above worries, we note that the group’s trade and other receivables stood at about US$877m as at 1Q14, close to a year’s worth of revenue. This has contributed to a negative operating cash flow of US$162m in the quarter. Management is confident, however, of receiving payments in the coming quarters.

Already trading near half book; maintain HOLD

We switch our valuation from P/E to 0.5x FY14F P/NTA (historical 3-year mean ~0.65x), given our forecast of a core net loss for FY14. As such, our fair value estimate slips from S$0.72 to S$0.63. Maintain HOLD.

Source: OCBC Research - 16 May 2014