SINGAPORE (July 22): Daiwa Capital Markets is reaffirming its “sell” recommendation on offshore and specialised vessels manufacturer Vard Holdings with a higher target price of 13.4 cents from the previous 11.8 cents, projecting that the stock could underperform the local index by more than 15% over the next 12 months.
(See Vard posts 2Q loss of NOK53 mil on restructuring costs)
This comes after Vard posted a 2Q loss of NOK58 million ($8.5 million) on Thursday, which Daiwa analyst Royston Tan says was “not unexpected” as the research house previously warned of contract cancellations leading to provisions made on its construction work-in-progress (WIP).
(See Vard Holdings terminates shipbuilding contract with REM Offshore)
“We believe the risk of further terminations cannot be ignored, with 14 more offshore-related vessels yet to be delivered as of 1H16,” says Tan in a Thursday report.
The analyst adds that Vard would have registered even higher 2Q16 losses, if not for a NOK70 million net forex gain due to the appreciation of the BRL against the USD, which was largely related to USD-denominated borrowings for its yard operations in Brazil.
While new orders of NOK6.2 billion were clinched this quarter, Tan points out that they were all non-offshore related.
With “no visibility on projection margins” on these contracts, the research house remains generally more cautious than the street on the effectiveness of Vard’s diversification strategy into the non-offshore sector.
As such, Daiwa continues to foresee losses for Vard in 2H16 despite higher gross-profit margin assumptions.
As at 10:15am, shares of Vard are trading 0.62% higher at 16.2 cents.
