• Few surprises
• Varying workload across yards
• Cease coverage

Results Within Expectations

VARD Holdings saw a 4% YoY fall in revenue to NOK 2,128m and an operating loss of NOK 4m in 2Q17, leading to a net loss of NOK 69m for the quarter. This is similar to 2Q16, when the company reported net loss of NOK 67m then. Results were within expectations, with 1H17 revenue and net loss accounting for 51% and 58% of our full year estimates. Compared to 1Q17, revenue was 20% higher but net loss was wider; 1Q17 saw net loss of NOK 25m.

Operational Updates Across Geographical Regions

In Norway, the design and procurement phases for cruise projects are on track, and the focus is on mobilizing adequate resources and strengthening cooperation with Fincantieri. Meanwhile, Vard Brevik is developing LNGrelated business opportunities. In Romania, the phase of new investments at Vard Tulcea is close to completion, while Vietnam continues to see stable operations. In Brazil, the group now has full control of Vard Promar, providing for an amicable termination of the partnership with PJMR.

Overall, the key operational challenge for the near term is managing varying workload across the different yards – “very high utilization” in Romania, low and variable load in Norway, and decreasing workload in Brazil. Meanwhile, risks relating to the offshore project portfolio remains (nine offshore vessels out of 44 vessels in order book). The group also has three offshore vessels (2 PSVs, 1 DSV that is ex-Harkand) in its balance sheet but these are not under the orderbook.

Cease Coverage

At the end of 2Q17, the order book was NOK 12.88b, up from NOK 12.65b at the end of 2016. Looking ahead, the group will continue to focus on its product portfolio diversification. Meanwhile the LOI for one exploration cruise vessel (signed in Jan 2017) has expired without resulting in a firm contract. The fisheries and aquaculture markets continue to see high activity, but competition is also strong. With a reallocation of resources, we are ceasing coverage on the stock.

Source: OCBC Research - 26 Jul 2017