Vallianz

Vallianz - No Co specific news of late. Latest news was its 2Q14 results last month where 2Q14 net profit soared to US$5.3m (+181% y/y, +12.5% q/q) on revenue of US$38.6m (+713% y/y, +39 q/q) following the consolidation of Rawabi Swiber Offshore Services since the start of the year The higher top-line was buoyed increased chartering revenue from its larger fleet of vessels to customers in the Middle East. Operating margin plunged to 29.1% from 80% in 2Q13 due to the significant change in business mix from ship management and brokerage fees to vessel chartering but held steady at 29.1% when compared to 1Q14. Higher other income of US$1.2m (+84% q/q) from a purchase gain helped mitigate steeper admin expenses of US$3.9m (+46% q/q). But bottom-line earnings was dampened a spike in finance charges to US$5.3m (+136% q/q) due to additional bank loans and issue of 7.2-7.25% notes under its Multicurrency Debt Issuance Programme for vessel acquisition. Including the new US$82m chartering contract secured in Latin America, order book has swelled to US$494m (1Q14: US$442m), stretching up to 2018, of which ~50% is expected to be recognised in 2H14 and 2015. This provides clear visibility of average quarterly revenue of US$41m over the next six quarters. Vallianz remains on track to expand its fleet from the current 29 vessels to 50 by 2016 and expects to take delivery of another nine new vessels by year-end. As part of its longer term plans, the group is collaborating with a Chinese shipyard to build its own designed vessels and has a first-right-of-refusal for up to 200 vessels. Despite the financial backing of its Saudi partner, the key concern of Vallianz is its ballooning debt of US$508m and dangerously high net gearing of 275%. This risk is unlikely to ease given the group's heavy capex requirements for its aggressive fleet expansion in the next two years. Another negative is the potential 16.8% earnings dilution from the conversion of 209m option shares and 182.6m redeemable convertible capital securities.