• Soft 3QFY16 results
• Lower gross profit margin
• Getting non O&G related enquiries

Soft 3QFY16 results with lower GPM

Triyards Holdings reported a 28% YoY rise in revenue to US$82.1m in 3QFY16, accounting for 75% and 70% of ours and the street’s expectations, respectively. The group, however, saw a 2% drop in gross profit to US$13.9m due to lower gross profit margin of 16.9% vs. 22.1% in 3QFY15.

This resulted in a 24% fall in net profit to US$4.1m in 3QFY16, bringing 9MFY16 net profit to US$15.6m which accounted for 61% of our full year estimate and 56% of consensus, below expectations. W

e understand that the lower gross profit margin was mainly due to

1) higher tendering costs in new markets and products e.g. Taiwan, Europe, and

2) lower margins for more standardised products in highly contested international markets.

Going forward, we would impute lower margin assumptions for such products, at around mid teens.

New order enquiries mainly non-oil and gas related

Compared to its peers, Triyards has a more diversified order book in terms of products offerings and clientele base, which is important in today’s tough operating environment. For its net order book, liftboats account for 47%, multipurpose support vessels account for 11%, chemical tankers 13% and non-oil and gas orders 22%. In terms of new enquiries, we understand that they are mainly related to dredging purposes, research vessels and vessels used in ports.

Continues to execute in tough environment

Triyards’s current net order book stands at about US$482m, which is about 1.8x its revenue in FY15. Though the group’s net debt to equity rose to 0.67x from 0.31x as at end FY15, we note that about 94% of its borrowings of US$168.9m relates to working capital financing.

After lowering our margin assumptions and rolling our valuation forward to FY17 earnings (P/E multiple remains as 5x), our fair value estimate slips from S$0.61 to S$0.51; maintain BUY given the stock’s upside potential.

Source: OCBC Research - 11 Jul 2016