Towards Financial Freedom
VARD - Outlook Robust Despite Mild Letdown In 1Q13
VARD's 1Q13 earnings of NOK188m (-30% y-o-y) were slightly below expectations as margins narrowed. Revenue growth was largely flat (-2% y-o-y) but EBITDA margin shrank to 11.1% (vs 14% in 1Q12, 11.4% in 4Q12). Management is confident of winning more orders given the company's robust outlook. We cut our FY13F EPS by 7% but maintain our BUY rating, at a lower TP of SGD1.69, due to its undemanding 7.6x FY13F P/E and robust order outlook.
- Results a letdown due to weaker margins. VARD's 1Q13 NOK188m (-30% y-o-y, +52% q-o-q) earnings were at 23% and 21% of our and consensus estimates respectively. Its EBITDA margin was weaker at 11.1% (vs our previous 12.6%), mainly due to delays and high costs in Brazil. We cut our FY13F EPS by 7% to reflect operational challenges in Brazil and lower utilisation in Vietnam. Its five Brazilian vessels will mostly be completed in FY13, with some spillover to FY14.
- NOK2.8bn in new orders boost net order book to >NOK16bn. VARD reported its end-1Q13 net order book at NOK15.5bn (USD2.66bn) for 46 vessels, of which 26 are based on its designs. Since end-1Q13, it has won three more orders. We estimate its current net order book at NOK16.4bn, implying nearly 16 months of revenue visibility.
- Robust order outlook on expectations of larger OSCV orders. At the results teleconference, its management appeared confident about winning some large orders this year, which we believe will be largely concentrated on a few large and complex vessels, similar to 1Q13.
- Keeping its competitive edge. Its new Brazilian yard, VARD Promar, is expected to start operating in June. Management has allocated >NOK600m in capex for FY13 to raise capacity and improve processes in its Brazilian, Romanian and Vietnamese yards.
- Still a BUY. Following our EPS revision, we trim our TP from SGD1.82 to SGD1.69, based on 12x FY13F P/E. While near-term growth is unexciting, the stock is valued at an attractive 7.6x FY13F P/E and we see near-term catalysts from large orders extending topline visibility. We believe its earnings will hit bottom in FY13F and rebound by 5% in FY14F.
Source: OSK
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