SOH delivered a decent 3Q, achieving a 13.6% EBITDA margin despite
the drag from its Brazilian operations. However, we are turning
cautious on the company on stake sale risk. We believe that a deal
could be transacted in the near future at current market prices.
At 21% of our FY12 (9M at 71%), 3Q
was broadly in line with both our and
consensus expectations. We expect a
stronger 4Q.We trim our FY12 EPS by
2% as we dampen margins. Though
our view on the industry and the
company is largely unchanged, we
downgrade the stock to Neutral on
stake sale risk. We also shave our
target price, now based on blended
valuations (previously 11x CY13 P/E).
An ‘OK’ quarter
3Q was an ‘OK’ quarter, in our view.
Revenue dropped 27% yoy as the
group delivered eight vessels (little
revenue is recognised during the
tail-end stage of construction). SOH
also achieved 13.6% EBITDA margin,
within our expectation. Performance
has been slightly impacted by project
delays in the existing Brazil yard (five
more vessels to be delivered).
Mid-cycle order intake
SOH secured orders for two vessels
worth NOK0.9bn in 3Q, bringing its
9M order intake to NOK8.3bn.
Another two orders were secured for
Siem Offshore since end-3Q, bringing
YTD wins to est. NOK9.4bn vs. our
FY12 order target of NOK10bn. In our
view, the order intake is
representative of a mid-cycle industry,
still faced with financing challenges
and pockets of over-tonnage.
Indeed,
management sees low order entries
for its two core products, AHTS
(erratic North Sea market) and PSVs
(many coming on stream). Instead,
SOH expects subsea to continue to
drive industry orders. Lastly, as order
intake is lagging recognition rate,
management flagged that yards could
experienced some under-utilisation in
2013.
Stake sale risk
Expecting selling price to be at
current levels, we downgrade SOH to
Neutral (see overleaf for further
details). We would revisit the stock
upon greater certainty of its
shareholding structure. (Read Report)
Source : CIMB Research
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