- Below but maintain Outperform. 4Q10 core net loss of US$5.4m was below our profit expectation of US$11m. FY10 reported net profit of US$37m (+8% yoy) forms 87% of our forecast and 96% of consensus. The earnings shortfall was due to higher admin costs, forex loss and tax expenses. Although we are comforted by consistent gross margins of 20% and a strong order book of US$680m, we are obliged to cut our FY11-12 earnings by 16% to adjust for lower revenue and higher admin expenses. We also introduce FY13 forecasts. Our new target price of S$1.01 following our earnings adjustments (from S$1.37) is still based on 12x CY12 P/E (5-year sector average). Maintain Outperform as we see catalysts from contract wins.
- Key positive: consistent gross margins. 4Q10 gross margin of 22.4% brought FY10 average margin to 22%, in line with our 21%. We believe this stemmed from good project execution in India. The healthy margins compared with 4Q09’s 0.2% have reinforced Swiber’s determination to expand its fleet to support EPCIC contracts and into different regions to cope with monsoon seasons.
- Overshadowed by admin costs, forex and tax charges. 4Q10 results were affected by higher-than-expected admin costs from increased staff strength for business expansion. Swiber also booked a US$7.6m forex loss from an unwinding of cash-flow hedges and the revaluation of MTN loans to S$ following a weakening US$. We were also surprised by higher tax charges in 4Q10 due to changes in deferred tax and higher tax provisions for Indian projects.
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