Vard

Vard: CLSA reiterates Outperform on Vard with 12-month TP at $1.21. Restructuring at Brazilian yards Niteroi and Promar are expected to help both Brazilian operations return to profitability soon. Niteroi yard is on track to deliver its last two vessels in 4Q14 and 2Q15, after which it will focus on supporting activities for Promar yard. Teething issues at Promar yard are slowly being sorted out as labour is now at full strength but with the majority still undergoing training. Utilization and productivity is expected to ramp up now till mid-2015, driving margin recovery. Vard also has a strong order book in excess of NOK20b, YTD order wins are close to NOK8.5b. However, tax claims from Brazil pressures near-term price outlook. The NOK200m tax slapped on Vard’s FY10 transfer pricing will take a hit on 3Q14. In addition, the company may also make tax provisions for FY11 and FY12 transfer pricing. Together, they can potentially wipe out one third of FY14 net profits. Current valuation at 7.3x FY15 P/E is a significant discount (~40-50%) to large-cap Singapore yards and near-term correction will be good opportunity to accumulate in anticipation of longer-term margin recovery. MBKE also rates Buy on Vard with TP $1.25