• Well-utilised, well-planned yards
• Strategic Marine has room for growth
• Low net gearing of 0.38x

Visited the three Vietnam yards

We visited the Vietnam yards of Triyards Holdings last week and witnessed good utilisation levels in general amidst its well-organised and well-equipped yards. The group has three sizeable yards in Vietnam, each ranging from 100,000sqm to 140,000sqm - Triyards Saigon Offshore Fabrication & Engineering (SOFEL) in Vung Tau, Triyards Strategic Marine (SM) in Vung Tau and Triyards Ho Chi Minh.

Two busy yards; Strategic Marine has more room for growth

We estimate utilization levels of about 70-75% for SOFEL and Ho Chi Minh, and a lower level of around 40% for SM currently, which provides headroom for growth to take on new projects within a short span of time. Recall that Triyards acquired SM in 2014 to diversify its offerings, as SM has been building aluminium and steel structures for the offshore, marine infrastructure and mining sectors for more than 10 years. This includes fast response vessels and patrol vessels.

Smooth operations in well-planned yards

The yards are clean, and the layouts are well thought-out to maximize productivity. Workers are assigned to specialised roles to maintain quality. Unlike yards in Indonesia, we understand that strikes are rare in Vietnam and deemed illegal. Currently, management is working out of container offices as a new office building is being completed.

Net gearing low at 0.38x; relatively more diversified

Net gearing remained low at 0.38x in 1QFY16; about 92% of the group’s borrowings relates to working capital financing. Due to the group’s focus on the liftboat business as well as its more diversified offering (including dive support vessels, tankers and fast craft vessels), it is faring relatively well compared to other O&M peers.

The group also undertakes carpentry work for its vessels, supporting margins. There is also the possibility of further diversification via such an avenue. Meanwhile, the group’s net orderbook of about US$564m (as of 8 Jan 2016) provides earnings visibility to FY17. Maintain BUY with S$0.61 fair value estimate, based on an undemanding 5x P/E on FY16 earnings.

Source: OCBC Research - 9 Mar 2016