• Quiet on the order front
• Weaker industry outlook
• Vulnerable to downturns

Weak share price performance

Since our previous report on 14 Aug, the share price of Swiber Holdings has dropped 13% compared to the STI’s flattish performance. We believe that this could be related to the relatively slow new order flow – the last announced order win was in Jun, and YTD new orders total US$315m vs last year’s US$588m. In addition, oil prices have been sliding of late, and should this trend continue, more exploration and development projects may be put on hold.

West Madura tender cancelled, but hope from ONGC

According to Upstream, Indonesia’s Pertamina has also cancelled its tender for the EPIC contract for the central processing facility and two well-head platforms for its West Madura project. Swiber was one of the contenders. A re-tender may be issued, but this also means a delay in the award of contracts. On a more positive note, there is talk that India’s ONGC may return to the market next month and revive the US$500m tender for the Bassein process platform.

Potential disposal gains in the future?

Recall that Swiber booked a significant disposal gain from Kreuz earlier this year. Its current stake in Vallianz is not as high (24.3%), and with Vallianz’s market capitalisation of S$315m, this translates to S$77m for Swiber’s stake. It is likely that Swiber may want to see Vallianz continue its growth path before considering any disposal, unless it is in need of cash.

Susceptible to downturns

As of Aug 2014, Swiber has an order book of about US$610m, which is about 60% of FY13’s total revenue. With falling oil prices and the slow order win momentum, we believe players like Swiber with high overheads and operating on thin margins are more susceptible to any downturn in sentiment. Looking ahead, the upcoming 3Q results may continue to be lacklustre. We lower our valuation from 0.45x to 0.4x FY14F P/NTA, but may look to lift it should the group be able to reduce its accounts receivables in the coming quarters. As such, our fair value estimate slips from S$0.57 to S$0.49. Maintain HOLD.

Source: OCBC Research - 2 Oct 2014