Swiber Holdings: Not out of the woods yet

Unexpected profits in 1Q09. Swiber's headline net profit was S$9.8m (-5% y-o-y) in 1Q09, despite a 23% y-o-y increase in revenue. We estimate that its recurring net profit has dropped 34% y-o-y to about S$6.8m; if the net gains from sale of vessels under sales-and-leaseback agreements and other assets were excluded. Still, this is better than our expectation of a slight loss in 1Q09.

Net gearing has come down, as expected. Swiber's net gearing has come down to 0.94x as of end 1Q09, vs. 1.01x in 4Q08. As Swiber took delivery of more vessels under sales-and-leaseback agreements in 2009, we project the net gearing to reduce further to 0.5x by end 2009. However, all bets are off the table if the scheduled delivery of these vessels is again postponed.

Concern on the lack of new orders. Swiber's net order book as of end 1Q09 was US$515m, vs. US$596m as of end 2008. This implies that Swiber has not won any small offshore EPCIC contracts y-t-d in 2009. The 2009 work season in Southeast Asia has already started, and Swiber has to rely mostly on the award of contracts for new markets in South Asia/Middle East to boost its order book.

Raise fair value to S$0.69. We have cut our new order win assumptions for 2009 and 2010, and reduced our recurring FY10 net profit estimate by 5.0% to US$30.7m. Still, we upgrade fair value to S$0.69, due to: 1) The use of higher 7x normalized FY09 PE, and 2) The increase in our FY09 net profit estimate to US$28.6m, vs. US$17.6m previously, due to the unexpected profits in 1Q09. Maintain SELL, given the lack of price catalysts.

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