(NEUTRAL, S$0.505, TP S$0.50)
Record high order book but profitability challenges remain. Swiber boosted its order book to a record high level of US$932m upon securing a US$155m EPIC project in South Asia. The encouraging news came two weeks after the fund raising announcement, as the group planned to issue convertible preferred stock aiming to finance its working capital needs. While top line growth is anticipated to sustain with more order wins, falling gross margin and rising financing costs remain our key concerns. Following the order win, we have raised FY11 and FY12 PATMI estimates by 16.9% and 14.6% respectively. Maintain NEUTRAL with an unchanged TP of S$0.50 as the group needs cost discipline. Despite that revenue has grown four folds from FY07 to FY11F, core PATMI is expected to stay flat during the same period.
Massive order win and more to come. Swiber landed a US$155m EPIC pipeline deal with a South Asia oil major. It is expected to contribute from 4QFY12 to 2QFY13. YTD order wins escalate to US$587m. We are expecting another US$620m in the next 12 months. According to Upstream, Swiber is currently the frontrunner for two offshore installation projects in Indonesia (US$77m) as well as a sub-sea pipeline in India (US$100m).
Investor to bear more non-tax-deductable costs. Swiber planned to tackle its rising capital needs through a private placement of convertible preferred share. With less seniority, it is expected to yield higher than the group’s convertible bond issued in 2009 (5%) and the Multicurrency note issued in 2011 (5.9%), exerting downward pressure to the already falling PATMI margin, which fell 5.8ppt YoY to 5.2% for 1HFY11.
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