• Raise order wins projection
• Positive sector outlook but risks remain
• Increase FV but HOLD rating intact

Estimated NOK2.7b of new order wins since 1Q14

Following Vard Holdings Limited’s (VARD) buoyant new orders intake of NOK5.5b in 1Q14 (39% of FY13’s total order wins) which boosted its order book to NOK21.8b (as at 31 Mar 2014), the group has followed up by securing another NOK2.7b of contracts in 2Q14, based on our estimates. This has further enhanced VARD’s revenue visibility from 2014 to 2016. We believe VARD is now in a solid position to exceed our FY14 order wins estimate of NOK11.5b. We now forecast VARD to clinch NOK13b worth of contracts each in FY14 and FY15. Correspondingly, we raise our FY14 and FY15 PATMI projections by 0.7% and 6.4%, respectively.

OSV outlook still largely positive

Our revised forecast is premised on a still robust outlook on the OSV and subsea sectors, including the Arctic regions, of which VARD has a strong competitive advantage. According to major OSV operator Tidewater, the Arctic markets will be a key area for higher exploration and development activity over time. Meanwhile, the OSV-to-rig-ratio has stayed stable at 4.36 for the month of May, but may decline to 3.71 in the future if we take into account the number of OSVs and rigs currently under construction. However, there are also downside risks, as some of VARD’s key customers such as DOF ASA, Solstad and Siem Offshore had recently described the North Sea spot market as volatile, especially for the AHTS segment.

Maintain HOLD

Although we raise our valuation target PER peg from 9x to 10x blended FY14/15F EPS to reflect VARD’s improved earnings visibility and consequently bump up our fair value estimate from S$0.97 to S$1.12, we believe the market has already priced in VARD’s recovery prospects and orders momentum. The stock has appreciated by a stellar 29.4% YTD. In light of the aforementioned factors, we maintain our HOLD rating on VARD.

Source: OCBC Research - 1 Jul 2014