Viking Offshore and Marine - 1H11 net profit of S$5.1m (OCBC)

Dropping Coverage

Current Price: S$0.107

1H net profit increased 7% YoY to $5.1m. Viking Offshore & Marine's (VOM) 1H11 revenue increased by 37% YoY to S$48.6m, while net profit increased by 7% to S$5.1m. The increase in revenue was mainly due to the consolidation of newly acquired subsidiaries. During 1H11, the group took a S$7.7m impairment charge against Marine Accomm Pte Ltd (MAPL); but this was offset by a S$8.0m gain from the disposal of its quoted investments and a S$3.2m bargain purchase from the acquisition of Viking Facilities Management Pte Ltd. Excluding the above mentioned and other non-operating items, VOM's adjusted NPBT for 1H11 would be S$5.8m, a 61% increase YoY. Compared to a year ago, the group's overall order book increased 19% to S$41.7m.

Impairment charge of S$7.7m. The impairment charge comprised VOM's investment in and loan to MAPL. Recall that VOM acquired a 55% stake in MAPL in August 2010, but sold back a 35% stake four months later. By July 2011, MAPL was placed under receivership. VOM has also lodged a report with the Commercial Affairs Department on MAPL's financial record-keeping. Besides the impairment charge, VOM may have to deal with a counter claim from MAPL's former director Tong Guan Teck, alleging that he is entitled to an indemnity from VOM brought against him by MAPL's creditor bank, DBS. As the case is now with the local authority, VOM is unable to provide further details.

Gain of S$8m from sale of quoted investments. The sale of quoted investments pertains mainly to VOM's shares in United Envirotech (UEL). As explained in our report dated 1 Jul 2011, its UEL shares were impaired when the market price fell to $0.12 on 31 Dec 2008. As such, when VOM sold 32m of UEL shares (as per its announcement on 29 Jun 2011), the average selling price of $0.30 produced an accounting gain of S$0.18 per share. For 1H11, sale proceeds from its quoted investments (which we estimate to be S$13-15m) were channeled towards the repayment of short-term borrowings.

Heightened market risk. Given recent equity market volatility and uncertainty, VOM's remaining quoted investments, worth around S$8m, may be subject to market risks or depressed prices. Meanwhile, management is currently in the process of integrating its recently acquired companies. At current price, its market capitalization is relatively small at only S$64m. Due to a reallocation of resources, we are DROPPING COVERAGE.