Swiber Holdings: Potential fund raising? (DMG)

(NEUTRAL, S$0.485, TPS$0.50)

Downgrade EPS and TP; maintain Neutral. Key takeaways from the analyst briefing yesterday: (1) Swiber may undertake a fund raising exercise to shore up its balance sheet and could raise S$100-200m. (2) 1H11 vessel utilisation was around 70% level and we believe this is only marginally better than six months ago. (3) Management continues to see robust tendering activities in the market. Following the briefing, we cut FY11-12F core net profit by 5-7% to reflect lower gross margins and higher minority interest. We also lower our TP by 43% to S$0.50 (previously S$0.87) pegged to 0.52x FY12E P/B (-2 std dev). Despite good contract visibility (1.1x annualised FY11 revenue), we are cautious on Swiber’s high net gearing (at 1.17x) and our new target P/B reflects the low adjusted net profit to assets (FY11F: 2%) and to equity (FY11E: 6%). Maintain Neutral on the stock. Our new TP implies 10x FY11 P/E and 8x FY12 P/E.

Potential fund raising not a surprise to us. Swiber is looking to raise new capital to strengthened its balance sheet and use it for earnings accretive exercise. This is not a surprise to us given that its net gearing has been on an uptrend since its last private placement in Jun 2009 (84m new shares at S$0.88/share) due to new capex and higher working capital. 2Q11 net gearing of 1.17x is the highest level in the past ten quarters. In our view, the fund raising could be earnings/EPS dilutive (depending on the final structure) in the near term unless the funds are deployed immediately for earnings accretive acquisition.

Order book development positive. Swiber announced US$112m new contracts on Fri (12 Aug) and Mon (15 Aug) and this lifted its YTD order wins to US$407m. Outstanding order book of US$752m will contribute to topline from 2011 to 2016, with bulk of the orders to be recognised in the next 24 months. Lower new orders from India were mitigated by higher order wins in Indonesia and Malaysia. We believe Swiber could add another US$400-500m in the next 12 months but this has been reflected in our new estimates.