Triyards has won a USD12.8m contract for four ASD tugboats, to be delivered in 2017, marking its entry into a new product range for a new customer. Maintain BUY with a SGD0.94 TP (135% upside). This takes its orderbook to USD577m. Triyards’ ability to maintain its order win momentum underpins our confidence in its long-term prospects. It is also one of the few companies in the sector with a growing earnings profile.
■ New product range for new customer
The four RAstar 3400 Azimuth Stern Drive (ASD) tugs are designed for escort operations in adverse sea and weather conditions. The customer is a Singapore-based international specialist marine craft group. We view the continuing diversification of Triyards’ order book and product range as a positive development, providing increasing flexibility that enables it to weather the downturn in the oil & gas space.
■ Margins likely higher than average
The USD12.8m price tag excludes owner-furnished equipment. Since engineering and fabrication work typically yield higher margins than procurement, the lower quantum of procurement in these contracts implies higher-than-average margins for the contracts overall.
■ Orderbook finds a higher peak
With this win, Triyards’ orders on hand hit another record high of USD577m. This provides c.1.5 years of revenue visibility, which is comparable to the orderbook of large-cap Keppel Corp (KEP SP, BUY, TP: SGD10.00).
■ Likely the most clearly undervalued stock in the sector
We maintain that Triyards’ valuations have been dragged down by concerns over its parent Ezra (EZRA SP, TRADING BUY, TP: SGD0.33), which we believe are similarly overdone. Triyards is operationally independent of Ezra, with negligible inter-company balances and <2% orderbook exposure. At 0.4x P/BV and 2.7x FY16F P/E, this stock is likely the most under-valued in the offshore oil & gas space in Singapore. Our TP is based on a 1.05x current P/BV multiple, which we believe conservatively values its 14-15% ROEs and growing earnings. (Read Report)
Source : RHB Research