• Still an operating loss in 1Q16
• Secures module carrier vessels contract
• Counterparty risk remains

Net profit of NOK 37m in 1Q16

VARD Holdings reported a 34% YoY fall in revenue to NOK 2,023m, but turned in a net profit of NOK 37m in 1Q16, compared to net loss of NOK 92m in 1Q15. The lower revenue was due to reduced activity, especially at the European yards and VARD Niteroi.

Restructuring cost of NOK 11m was recognized in the quarter, related to the reduction of workforce. Though the group saw an operating loss of NOK 5m in 1Q16, a net foreign exchange gain of NOK 68m helped to boost bottom-line. A large part of it relates to the yard construction loan in Vard Promar denominated in USD.

Secures close to US$300m contracts and diversifying

More encouragingly, the group also announced that it has secured a contract for the design and construction of 15 Module Carrier Vessels for Topaz Energy and Marine with an aggregate price of close to US$300m. The vessels are specially developed by Vard to navigate the shallow river systems as they transport modules through the Russian waterways to oilfields in Kazakhstan.

The units will be operated by Topaz through a consortium led by Blue Water Shipping for the end-client Tengizchevroil. This is a positive development, as it shows that the group is achieving more results in its diversification attempts.

The expedition cruise ship market is also doing relatively well, and VARD’s parent, Fincantieri is seeing good utilisation of its yards. Hence it had also booked some yard space in VARD’s Romanian yards so that some cruise ship work can be undertaken.

Increasing focus on counterparty risk

With order intake of NOK 651m in 1Q16, VARD’s order book (27 vessels) amounted to NOK 8.58b as at end 1Q16, down from NOK 10.23b at the end of FY15.

At this juncture, the market is still concerned about potential vessel deferments and cancellations, such as the recent Harkand order, whose client has gone into administration. Maintain HOLD with S$0.20 fair value estimate.

Source: OCBC Research - 13 May 2016