• Mermaid Maritime’s 2Q18 net loss of US$7.7m larger than expected.
• Overall fleet utilisation still low as one key vessel was drydocked for majority of quarter; improvement expected in 2H18.
• Seeing recovery in tendering activity in the Middle East.
• Balance sheet remains in healthy position.

Maintain HOLD as We Await More Evidence of Earnings Improvement and Order Win Recovery

Although we did expect a weak quarter on drydocking of one key vessel, net losses in 2Q18 were larger than expected on the back of a steep fall in revenues and one-off increase in SG&A costs. We believe revenues will ramp up in 2H18 as all four key vessels are on contracts during the period, which should result in breakeven earnings or minor profits in 2H18.

Mermaid Maritime’s FY19 earnings should be positive as well, as order win momentum is showing signs of improving, amid higher penetration into the Middle East market, but execution risks remain. We will turn more positive on the stock if we see sustained evidence of new order wins and a turnaround in profitability in 2H18.

Meanwhile, Mermaid Maritime’s share price should be supported by its undemanding valuation (~0.3x P/BV) and lack of balance sheet stress. Thus, we maintain our HOLD call on the stock with an unchanged Target Price of S$0.13.

Source: DBS Research - 16 Aug 2018