• Cutting costs
• More funds may be needed
• Ceasing coverage

FY14 – a year to forget

Swiber Holdings reported a 30.1% fall in revenue to US$726.5m and a 65.1% drop in net profit to US$21.7m in FY14, the latter boosted by the sale of Kreuz in the year. Excluding such one-off items, core net loss was around US$68m in FY14, close to our forecast of US$62.8m. There was a loss on the gross level in 4Q14, bringing full year gross margin to only 2.4% vs 16.4% in FY13.

FY15 does not look too good either

As at 27 Feb 2015, the group had an order book of US$1.4b, supported by recent contract wins. However, we are less certain about the margins, especially for the newer contracts in which the group bid relatively aggressively. Looking ahead, there is likely to be intensified competition among contractors as oil majors shelve projects in view of the lower oil price environment.

Embarking on cost saving initiatives

Swiber has terminated and restructured certain existing vessels that were previously under various leasing arrangements, and it believes this strategy would lower its leasing expenses and enhance the profitability of its operations in future. In addition, Swiber plans to work on optimizing its administrative structure to yield cost savings.

Share price has declined ~70% in the past 12 months

From S$0.53 a year ago, Swiber’s share price has declined about 70%. Though the stock is now trading at less than 0.2x P/B, any potential acquirer has to keep in mind the substantial net debt position the group is in (US$990m). In addition, more funds may also be needed to support its higher order book. Meanwhile, refinancing risk is also increasing; S$95m (~US$71.6m) of notes are due in Jun this year, followed by S$130m in Jun 2016, S$75m in Jul 2016, S$100m in Oct 2016 and four more notes payable in 2017-2018. Interest rates for the notes range from 5.13% to 7.75%. With a reallocation of resources, we are now ceasing coverage on Swiber.

Source: OCBC Research - 4 Mar 2015