Swiber

Swiber: Announced this morning it has secured its second largest contract in corporate history – an engineering, procurement, construction, installation and commissioning contract worth US$310m from a national oil company (NOC) in South Asia.

According to an earlier report by O&G industry insider newsletter Upstream, the NOC is India’s state-owned Oil & Natural Gas Corporation (ONGC) and the contract is for the provision of seven new wellhead platforms and associated infrastructure for the Daman gas field off India’s west coast.

Although Swiber attributed the successful bid to track record on previous projects with ONGC, there are whispers that the US$310m bid is over aggressive, with some questioning the profitability of the project.

For a sense of the under-bid, the second is a distant US$449m (45% higher), followed by US$458m (48% higher)and US$512m (65% higher) in third and fourth place.

As such, while the project adds to order book, we expect squeezed margins and are not optimistic on its contribution to bottom line, which should begin in the current financial year.

Current order book stands at a record high of US$1.6b, but we are wary of concentration risks.

Recall just two months ago, investors were concerned by the absence of order book replenishment when it sank to a 4-year low of US$640m. On 14 December, however, Swiber announced its foray into West Africa with a project worth US$710m (largest ever). Together, the West African project and this low-margin Indian project contribute 61% of current order book.

Furthermore, we are concerned by its high net gearing (169%) in the rising interest rate and low oil price environment.

The street has 1 Hold and 4 Sells on the counter.