VARD Holdings - Brazil ops likely to be overhauled‏

• 2015 likely to see net loss

• Brazil yards could see impairments

Still a SELL

Net loss of NOK 486m in 3Q15
VARD Holdings reported a 19% YoY drop in revenue to NOK 2.27b, while EBITDA before restructuring cost was -NOK 467m in 3Q15, caused by loss provisions related to projects at the Brazilian yards. Along with restructuring cost of NOK 36m in the quarter, VARD saw a net loss of NOK 486m in 3Q15 vs. a loss of 37m in 3Q14. This was below our expectations but less of a surprise after VARD’s earlier profit warning.

Targeting other segments like fisheries
At the end of 3Q15, VARD’s order book amounted to NOK 14.01b, down from NOK 13.92b at end 2Q15. YTD, new order intake has totalled NOK 2.64b, lower than NOK 9.45b in 2014. Looking ahead, the group’s core market for OSVs is likely to remain weak, especially for PSVs and AHTS vessels in the North Sea where many vessels have been laid up. Currently, project opportunities are mostly related to light construction vessels, and in other geographical areas. Other specialised vessels segments may also present opportunities, but the market is fragmented and competitive. Meanwhile a new vessel design series targeting fisheries and aquaculture has been launched.

Technical Analysis
Daily Chart
May see Brazil yard impairments
2015 is now likely to be the group’s first year of loss after the 2008 financial crisis, which is not surprising given that VARD is facing the dual challenge of

1) a severe cyclical downturn in its core market, and

2) having to manage its troubled Brazil operations.

As part of its strategy overhaul, VARD’s exposure to Brazil will be reviewed, leading to possible structural changes which could result in impairments; as at end 3Q15, NOK 950m of its NOK 2,368m PPE was related to Brazil. Given the dim earnings outlook, we switch our valuation to a 0.65x FY16F P/NTA valuation (taking into account current low industry valuations and potential impairments ahead), such that our fair value estimate drops from S$0.41 to S$0.31. Maintain SELL. (Read Report)

Read Related Reports
1) Vard Holdings - No turnaround in sight by DBS Group Research, published on 12 November 2015

2) Vard Holdings - Slow Orders? Go Fishing! by RHB Research, published on 12 November 2015

3) Vard Holdings Ltd - Brazil proves insurmountable by CIMB Research, published on 11 November 2015

4) Vard Holdings - Brazil disappointment again by Daiwa Capital Markets, published on 11 November 2015

5) Vard Holdings - Brazil Yet Again by Maybank Kim Eng Research, published on 11 November 2015

Source : OCBC Investment Research

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