Swiber 2Q08 results

Swiber released their 2Q results today. From the looks of it, it seems like they did very well, with net profit (mind you, not revenue) shooting up 258.1%. 2Q revenue is 82% of total revenue achieved in the whole of FY07 and 2Q’s earnings had already overshot the whole of FY07’s earnings. But I’ve learnt never to take press release so literally, so it’s best to pore over the results and ignore all the hype in the press release.

Let’s ignore the 2Q results and talk about the half year results straight. Why? This must be the first time I’m studying Swiber’s results though I’ve been holding this since 2007. Tsk tsk, so many things to do, so little time…

In USD’000,
-----------------------------------1H08------------------1H07
Revenue----------------------195,402-----------------44,676
Gross profit------------------50,638------------------12,767
PATMI------------------------31,119-------------------9,943

Gross margin-----------------25.9%------------------28.6%
Net margins-------------------15.9%------------------22.3%

Current assets----------------310,267----------------235,610
Total assets-------------------639,375----------------370,040
Current liabilities-------------218,711---------------109,730
Total liabilities----------------424,443---------------192,561
Equity (after MI)-------------212,857---------------176,872

Current ratio-------------------1.42---------------------2.15
Total debts to equity---------1.99----------------------1.09
ROE----------------------------14.6%-------------------5.62%
EPS (US cents)----------------7.33---------------------2.69
NAV (US cents)--------------50.16--------------------41.68

Net cash from operations---18,482-----------------2,938
Net cash in investing--------117,106---------------13,043
Net cash from financing-----52,591---------------13,682


My take:

A few things stand out from a simple comparison of 1H08 and 1H07 results. These are:

1. Revenue in 1H08 is over 4 times that of 1H07

From their foot notes, they mentioned their increase in revenue is the results of revenue derived from offshore construction projects. In 2Q08, Swiber executed 6 projects simultaneously over Brunei, M’sia, and Indonesia, compared to just 2 offshore construction projects in M’sia and Brunei in 2Q08. Two things to take from here – one is that Swiber’s capability and outreach is wider than a year ago with more operations in a wider area. The second is that the scope of their operations also widened over a span of a year.


2. Gross profit dropped a little while net margins dropped substantially

The gross and net margins dropped in 2Q, pulling down both in 1H too. I’ve no ready answer, since this is my first analysis of Swiber. Need to dig out more.


3. There is a big jump in liabilities, with total debts to equity ratio almost jumping by 2 times. Current ratio is weaker compared to a year ago. Their cash flow from operations seems to be better. A good part of their cash flow is used on purchase of new PPE. Bonds and new loans raised forms a big chunk of their cash flow.

I read that this is due to Swiber issuing MTN bonds and an increase in bank borrowings. This is to finance fleet expansion and working capital purpose. Indeed, their PPE had increased significantly. There are also 2 vessels under construction.


Outlook

As of 30th June, there is an order book of about USD 664 million compared to less than USD 220 million last year. Contract size is one thing, what are the margins and net profits for these contracts – that’s more important. I’ll be monitoring their margins issues in future results. As usual, no dividends are declared. With a annualized ROE of around 28%, I’d rather they keep the money and re-invest in their business.

Baring unforeseeable circumstances, Swiber is almost certain to have a bountiful year in FY08. I’m actually more interested in knowing what the margins and profit for their deep water drilling operations are, which should be ready by 2010? That will be more exciting and something to watch out for.


Value to price comparison

Based on 1H08 earnings of SGD 10.26 cts, we can annualize it to have a forecasted EPS of 20.5 cts. For a little perspective, the EPS for FY07 is SGD 17.6 only, so let’s put it at SGD 20 cts (that’s a 14% rise in earnings). Last close for Swiber is 1.510 per share, which gives a PE ratio of 7.6 times.

Historical PE

Year-------Price(low)----Price(high)----EPS(SGD)^-----PE(low)-------PE(high)
2006----------0.50-------------1.04------------0.0462---------10.8----------22.5
2007----------0.83-------------3.80-------------0.164----------5.1-----------23.2
2008----------1.51-------------3.60-------------0.200*---------7.5-----------18.0

* forecasted based on 1H08 earnings
^ EPS(SGD) based on Shares investment book, with 1 USD to 1.4 SGD exchange rate

Around $1 per share, Swiber would have a PE of around 5x, which is near to the historical low. That would be such a good margin of safety for a cheapskate like me.

NAV is around SGD 0.70 per share, so at current price, it’s trading at around 2.2x NAV. At $1 per share, that’s 1.5x NAV too.