4Q15 results inline with expectations; maintain BUY
Despite the tough environment, Triyards has kept up its order win momentum by adding another US$100m worth of contracts to bring its net orderbook to a record high of US$564m. Given the revenue visibility over the next two years, we maintain our FY16-17 forecasts and add our estimates for FY18. We reiterate our BUY recommendation, with an unchanged TP of S$0.55, still pegged to 6x FY16F P/E. Triyards is currently trading at 50% discount to book value, which we believe undervalues its >10% ROE track record and good revenue visibility.
Diversifying beyond liftboats with latest order win
Its net orderbook is now at US$564m after the latest order win comprising mainly of three chemical tankers and two high speed craft. This marks four consecutive quarters of increasing net orderbook (US$350m, 370m, 520m and 564m as at end 1Q15, 2Q15, 3Q15 and 4Q15). The latest order win highlights Triyards’ competitive advantage against Chinese yards in terms of cost and quality. The diversification of its orderbook is a positive move given what we see as a slowdown in liftboat ordering due to the potential supply of units being built in China and the Middle East. It currently has 9 liftboats under construction, making up 58% of its net orderbook, down from 73% of net orderbook as at end 3Q15. The remainder of its net orderbook (Figure 4) is diversified across multi-purpose support vessels (MPSV), chemical tankers and aluminum vessels under Strategic Marine.
Weak overall sentiments but downside may be limited from here
The oversupply in oil markets is expected to continue well into 2016 as demand growth slows, according to the latest comments by the International Energy Agency (EIA) and the Energy Information Agency (EIA). Figure 5 shows forecasts by the IEA that indicates the oversupply situation improving, but still not enough to balance out oil markets to the period prior to 3Q15 when Brent oil prices were >US$100/bbl. A key overhang remains from Iranian oil supplies that can be freely exported next year if sanctions are lifted. However, given the trough valuations that O&G companies are now trading at, we see limited downside risks. Upside catalyst in the O&G industry may come from geopolitical risks that could disrupt supply and push oil prices higher. (Read Report)
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Source : KGI Fraser Research