Looking ahead at 2012. Swiber has secured new contracts worth about US$758m YTD for work in South Asia, SE Asia and the Middle East, and bidding activity in the industry remains active. Management is optimistic about the industry outlook, given the amount of jobs that are coming up for tender in SE Asia and South Asia in the next few years. As the group mainly works with large oil majors and national oil companies, there has not been any significant change with regards to payment terms. Looking ahead, the group has an order book of about US$1b (as of Nov 2011), which is expected to contribute to its performance over the next two years.
Another shot at ONGC's WO-16 project. According to Upstream1 , India's ONGC has initiated a quick re-tendering exercise for its WO-16 wellhead platforms project, and plans to award the contract by 30 Dec this year, for a project completion by May 2013. Likely contenders for this job would include McDermott, Abu Dhabi's NPCC, and a consortium involving Swiber and India's Pipavav Shipyard. During an earlier stage of the first tendering process, McDermott revealed its price quote of US$164m and was the lowest bidder; Swiber and Pipavav came in fourth at US$234.9m2 .
Offshore EPCI market forecasted to be buoyant... Despite current market uncertainties, the overall level of activity in the offshore industry remains buoyant. According to industry expert Douglas Westwood in an Oct paper3 , exploration and production (E&P) spending budgets are subject to adjustments but are currently biased on the upside. However, should global economic events take a turn for the worse, a widespread recession and an associated fall in oil demand and oil prices would pose significant challenges to the offshore industry. In the longer term, we believe the offshore sector has strong fundamentals as countries have an interest in fulfilling as much domestic demand as possible, so as to boost energy security.
... but competition is intense too. Though the overall industry outlook is favourable, competition is also intense, which may weigh on margins for new projects; meanwhile Swiber is guiding for a 15-20% gross margin range going forward. The group has disappointed the market with its core earnings this year and we are not ready to up our margin assumptions without a consistent showing of cost control. Given limited upside potential, we maintain our HOLD with S$0.58 fair value estimate.
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