Vard

Vard: Maybank-KE reiterates Buy for Vard despite downward adjustment in TP. Maintaining the peg at 1.4x FY15E P/BV, new TP is $0.02 lower at $1.25 due to slight disappointment in 2Q2014 results. However, two bright spots – Promar and Niteroi yard – give us the confidence for Buy call. Promar yard in Brazil has been the main drag on earnings, raking in an estimated NOK60-70m in net losses in the past quarter. The losses are attributed to short-term factors such as adverse climatic conditions and teething issues, such as training and integration of new workers. As such, the management guides the yard would turn profitable from next year onwards with comfortable EBITDA margins in the range of 8-9%. Meanwhile, Niteroi yard will deliver its two last outstanding vessels by end-2014 and mid-2015 to pave the way for outfitting works to support the Promar yard. Vard is favoured for its strong earnings visibility given its large orderbook of NOK21.6b and relatively cheap valuation. TP of $1.25 is conservative as 1.4x FY15E P/BV is one SD below five-year historical mean.