Swiber Holdings (Swiber) reported a 40.5% increase in revenue to US$654.5m but a 14% drop in net profit to US$32.1m in FY11. The latter was significantly below ours and the street’s estimates due to 1) lower other operating income, 2) higher administrative expenses, and 3) a jump in income tax expense in 4Q11. We are confident of the group’s ability to secure projects going forward, given the buoyant industry outlook and its strong foothold in certain geographical areas. However, we are expecting higher administrative costs and tax expenses which will impact core earnings. We are now assuming an US$850m new order win for 2012 after Swiber secured US$216m worth of work (excl. US$38m JV contract) YTD. Although this bumps up our fair value estimate to S$0.70, we maintain our HOLD rating due to limited upside potential.
4Q11 results significantly below
Swiber Holdings (Swiber) reported a 40.5% increase in revenue to US$654.5m but a 14% drop in net profit to US$32.1m in FY11. Revenue was in line with our expectations but bottom-line was significantly below ours and the street’s estimates of US$42m and US$40.2m, respectively. The group had turned in net profit of only US$1.5m in 4Q11 vs. US$8.5m in 4Q10 and US$13.5m in 3Q11; and the reasons for the underperformance were 1) lower other operating income, 2) higher administrative expenses, and 3) a jump in income tax expense.
High taxes in North Asia projects
The group saw a significant increase in income tax expense (US$17.9m in 4Q11 vs. US$3.3m in 3Q11) and management explained that this was due to work executed in India that had withholding tax. Certain projects were taxed based on top-line figures of projects, which can be substantial. As the group typically executes North Asian projects in 1Q and 4Q of each year, next quarter’s results may also be impacted.
Top-line should grow going forward
Swiber has an order book of over US$1b and we are confident of its ability to secure projects going forward, given the buoyant industry outlook and its strong foothold in certain geographical areas. However, we are expecting higher administrative costs and tax expenses which will impact core earnings. As for non-operating items, fair value losses on Swiber’s convertible bonds may also be booked in 1Q12 (given the CB’s price trend), and there are unlikely to be significant vessel disposal gains that will boost earnings this year. The group secured about US$750m worth of contracts last year and we are now assuming an US$850m new order win for 2012 after Swiber secured US$216m worth of work (excl. US$38m JV contract) YTD. Although this bumps up our fair value estimate to S$0.70, we maintain our HOLD rating due to limited upside potential.
High taxes in North Asia projects
The group saw a significant increase in income tax expense (US$17.9m in 4Q11 vs. US$3.3m in 3Q11) and management explained that this was due to work executed in India that had withholding tax. Certain projects were taxed based on top-line figures of projects, which can be substantial. As the group typically executes North Asian projects in 1Q and 4Q of each year, next quarter’s results may also be impacted.
Top-line should grow going forward
Swiber has an order book of over US$1b and we are confident of its ability to secure projects going forward, given the buoyant industry outlook and its strong foothold in certain geographical areas. However, we are expecting higher administrative costs and tax expenses which will impact core earnings. As for non-operating items, fair value losses on Swiber’s convertible bonds may also be booked in 1Q12 (given the CB’s price trend), and there are unlikely to be significant vessel disposal gains that will boost earnings this year. The group secured about US$750m worth of contracts last year and we are now assuming an US$850m new order win for 2012 after Swiber secured US$216m worth of work (excl. US$38m JV contract) YTD. Although this bumps up our fair value estimate to S$0.70, we maintain our HOLD rating due to limited upside potential.
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