Triyards Holdings
Share Price S$0.68
Target Price S$0.87
1QFY14: Awaiting Its First Drilling Jack-up Rig Order

Triyards reported revenue and net profit of US$90.1m (+69% yoy) and US$7.3m (13% yoy) respectively for 1QFY14. It was a lumpy quarter due to faster-than-expected recognition of orderbook due to higher contributions from the subsea construction vessel, Lewek Constellation, and the advance completion of three SEUs. Gross margin was lowered by 6.2ppt due to a different project mix. Share price is consolidating, awaiting Triyards? first drilling jack-up rig order. Maintain BUY. Target price: S$0.87.


RESULTS
? A lumpy quarter. Triyards reported revenue and net profit of US$90.1m (+69% yoy) and US$7.3m (+13% yoy) respectively for 1QFY14. Gross margin came in at 14.3%, -6.2ppt yoy, but was still within management?s guidance of 15%. It was a lumpy quarter as revenue was larger than expected, implying that orderbook recognition was faster than expected. The increase in revenue was due to higher contributions from the subsea construction vessel, Lewek Constellation. Revenue from self-elevating units (SEUs eg. liftboats) was also higher due to the advance stage of completion of two of the BH450 series and one of the BH335 series. These increases were partially offset by higher revenue generated in 1QFY13 from one AHTS vessel and two platform supply vessels (PSV) which were delivered in 1HFY13.

? Lower margins due to a different project mix. The increase in gross profit was due to a higher revenue. However, the gross margin decline (-6.2ppt) was due to different mix of projects at their respective completion stages.

STOCK IMPACT
? Awaiting Triyards? first offshore drilling jack-up rig order. We have assumed annual contract wins of US$300m p.a. in our earnings forecast. Thus far in FY14, Triyards has won
new contracts totalling US$66.5m. These include two contracts (including a BH335 SEU contract) totalling US$59m announced in October last year and US$7.5m worth of contracts announced yesterday. Share price has been consolidating, awaiting Triyards? first offshore drilling jack-up rig order. Triyards has added a new drilling jack-up design ? the TDU-400 ? to its suit of proprietary SEU designs.

EARNINGS REVISION/RISK
? Maintain our earnings forecasts. The key earnings risk is lower-than-projected contract wins.

VALUATION/RECOMMENDATION
? Maintain BUY and target price of S$0.87. Our target price is pegged at FY14F P/B of 1.2x, which is at a 30% discount to the long-term 1-year forward P/B mean of 1.7x for the OSV-shipyard segment of the offshore & marine sector. In our view, a P/B valuation methodology is more appropriate than PE as Triyards? current earnings do not reflect the potential of its proprietary SEU designs.

SHARE PRICE CATALYST
? Contract wins. In particular, a maiden order for its new TDU-400 design will set Triyards on a path to become a drilling rig builder and one of the three rig builders based in Singapore.

? EPS-accretive acquisitions.

? Growing acceptance of liftboats outside of the Gulf of Mexico (GoM).