We are encouraged by operating margin… The 11% YoY decline in 2Q09 revenue to US$110.8m was mainly due to the completion of the projects in Malaysia and execution of fewer projects (4 vs. 6 in 2Q08). Stripping away the non- recurring gain on disposal of assets of US$4.5m, core operating profit of US$17.5m was down 34% QoQ but ahead of our expectations of US$14.0m. After several disappointing quarters, an increase in operating profit margin to 15.8% in 2Q09 is encouraging, though this is some way off pre-credit crisis’ margins of 20%.
.. and enhanced cash position. In Jun 09, Swiber successfully raised net proceeds of US$49.8m which improved net debt to 0.75x as at 30 Jun 09. But investors should take note of the negative free cashflow, Working capital was negative as advanced receivables were worked down while payments were due. As such, Swiber recorded negative FCF for the quarter.
..new order replacement rate is slower than orderbook depletion. While Swiber secured US$93m in 2Q09, its orderbook showed a declining trend, from US$515m in 1Q09 to US$509m in 2Q09. Without a reversal in the shrinking orderbook, revenue growth momentum is unlikely to sustain. Our earnings model shows that FY11 revenue would fall drastically.
..and little is known publicly on the working status of Swiber’s pipelay vessels. Through our discussions with the industry players, we learn that Swiber’s vessels appear to be facing several execution difficulties. We are unable to verify them, as there is limited public information to track the working status of offshore vessels. We hope to seek greater clarity from the management.
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