Analysts alarmed at Swiber’s 97.8% profit plunge in Q3

The firm saw a net loss of $35.5m.

Swiber Holdings reported an extremely weak set of results for the third quarter, with gross profit plunging 97.8% year-on-year to $1.1m (US$847k).

According to OCBC, Swiber’s gross profit for 9M14 accounts for only 38% of its full-year estimate. The group reported a 60.9% year-on-year fall in revenue to $138.5m (US$107.3m).

OCBC warns that Swiber has to win orders soon, as its current order book stands at about $690.6m (US$535m), which is about 50% of FY13’s total revenue.

“The group saw a net loss of US$27.5m in the quarter, compared to a net profit of US$7.7m in 3Q13. This brings 9M14 net profit to US$30.7m, vs our original full year estimate of US$63m. Stripping out one-off items, the picture looks even worse – 9M14 core net loss was ~US$62m. Gross margin was only 0.8% in the quarter vs 14.2% in 3Q13 as the group executed fewer projects, but still had to incur its high fixed costs,” noted OCBC.

Here’s more from OCBC:

With higher debt and a lower equity base, net gearing rose to 1.7x in 3Q14 vs 1x in 3Q13. Along with weaker oil prices and the slow order win momentum, we believe players like Swiber with high overheads and operating on thin margins are more susceptible to any turn in sentiment.

We roll forward our valuation to FY15, and based on 0.3x P/NTA, our fair value estimate is lowered from S$0.49 to S$0.34. The stock is cheap, but for good reasons: 1) likely core net losses in FY14 and FY15, 2) slow order flows amidst a competitive industry, 3) accounts receivables that remain high, and 4) a steadily rising net gearing.