Swiber's string of contract wins fails to soothe analysts' doubts

The contracts are too cheaply priced.

Analysts remain cautious on Swiber in spite of its recent spate of large contract wins.

According to Maybank Kim Eng, Swiber’s recent wins appear to be priced too cheaply, with competitors submitting considerably higher bids for the same projects.

“Given the huge disparity in bid prices, we prefer to watch for tangible evidence before turning more positive. If Swiber delivers on margins, a huge earnings swing is possible, potentially justifying a re-rating,” stated the report.

Here's from the report:

However, in an analysts’ briefing, management expressed confidence in the contracts’ profitability. Gross-margin guidance was surprisingly high at more than 20% for the West African project and 10-15% for India.

Reasons cited for its rivals’ higher bids were: Some were new to India and may not be familiar with ONGC’s requirements. Swiber has completed six projects for ONGC.

Swiber uses its own vessels efficiently across projects. This brings down its costs. Its two India projects are close to each other and can share assets and resources.

In contrast, some competitors have to charter in vessels. Some competitors are not interested in the jobs per se as they may not have the right expertise and assets.

They are bidding just to test the market and get in the game for future projects. Input prices are lower now with cheaper steel and fuel. A weaker euro also makes equipment cheaper. Swiber’s scale and relationships with suppliers lower costs. Still, we remain cautious.