• US$315m of work secured YTD
• Bidding for work
• Already trading below half book

Secures US$80m contract, but still needs more

Swiber Holdings recently announced that it has secured an engineering, procurement, installation and construction (EPCIC) contract in Latin America worth US$80m. This involves subsea development work including pipeline tie-in work, and will commence immediately with completion scheduled for 2015. Though this would add to its order book, we still expect weak results for the next two quarters, unless the group clinches more contracts soon with an immediate start date. Earnings may pick up, however, in 4Q14, which is when a significant portion of projects in its order book of US$650m (as at 1Q14) will commence. Since 2013, the momentum of new contract wins has been relatively slow – including this recently announced contract, the group has secured US$315m worth of work YTD, vs. about US$588m for 2013 and US$1.6b for 2012. It is imperative that the group continues winning contracts given its significant overheads.

Eyeing opportunities in Latin America,

including more decommissioning work On a more positive note, the group has proven to be able to establish a foothold in the growing energy sector in Latin America – Swiber successfully completed the construction of a 77km-long submarine duct for PEMEX last year, and part of its earlier contract wins this year also involved work in Latin America. Swiber is also eyeing opportunities in the decommissioning segment, where a push to dismantle abandoned oil and gas infrastructure in the Gulf of Mexico has created a promising market for companies.

Also bidding for other work

Meanwhile, the group is also seeing opportunities in its traditional markets like India. According to Upstream1, it is one of five contractors bidding for subsea pipeline work at ONGC’s Mumbai High redevelopment, and is a front-runner for the project.

Already trading below half book; maintain HOLD

At its current price, the stock is already trading below half its book value. However, given the group’s 1) relatively poor earnings quality and lumpy operating cash flows, 2) dim outlook for at least the next two quarters, 3) high leverage and that 4) the stock has been trading at an average of 0.65x book in the past three years, we maintain our HOLD rating and S$0.63 fair value estimate (based on 0.5x FY14F P/NTA).

Source: OCBC Research - 10 Jun 2014