Vard

Vard: OCBC highlighted the industry de-rating, following the sharp dip in oil prices. Brent crude oil prices have taken a 15% tumble to S$97.7/bbl from the YTD peak of S$115.1/bbl, driven by a stronger USD and easing geopolitical tensions. On a positive note, average AHTS spot rates in North Sea have rebounded strongly YoY in Aug due to the peak summer period. However, average PSV rates in the North Sea have deteriorated. Similarly, utilisation rates have increased for AHTS (YoY basis for Aug) but declined for PSVs, highlighting a possible oversupply situation for the latter. Vard share price has fallen 19.0% since it announced on 5 Aug 2014 that it has received an additional tax claim of ~NOK200m (including penalties and accrued interest) from the tax authorities in Brazil. VARD intends to file an appeal against the ruling. Given the uncertainties over the tax claims by the Brazilian authorities on Vard, volatility in the North Sea market and recent de-rating in the industry, OCBC opt to lower its valuation peg from 10x to 9x. House also cut its FY14 and FY15 PATMI forecasts by 4.8% and 7.5%, respectively, to account for cost pressures in Brazil. Correspondingly, TP dips from $1.12 to $0.94, still based on blended FY14/15F EPS. Maintain HOLD.