Vallianz

Vallianz: 4Q14 net profit improved 27% y/y to US$3.6m, on revenue of US$48.2m (+700%), bringing FY14 earnings to US$18.5m (+147%) and revenue to US$153.7m (+669%).

FY14 was a marked year in headline numbers, following the acquisition of Rawabi Swiber Offshore Services at end-2013, which significantly boosted charter and brokerage revenue for the group, comprising 78% of overall sales from 44% in FY13.

However, delving into the quarterly results since 1Q14, both gross and operating margins were on a steady decline from 37% and 22%, to 35% and 8%, respectively, with operating expenses weighed by a surge in admin expenses and finance costs, on a larger staff base from its several acquisitions and burgeoning debt.

Meanwhile, net gearing eased q/q to 2.16x from 2.53x, but still at an uncomfortable 17% of sales. With the protracted oil price weakness, it may inevitably lead to price pressures in Vallianz' top line going forward.

Assuming gross margin and admin expenses stay constant, a 18-19% drop in revenue would erode Vallianz' earnings entirely.

In addition, management is hopeful that it does not see any teething issues in its recent acquisitions of a marine base in Batam and a shipyard in Singapore, in an attempt to raise profitability by carrying out its own vessel maintenance, repair and conversion.

Vallianz' market cap eroded 68% since the start of 2014, as earnings per share went a rampant decline from US0.32¢ in 1Q14 to US0.03¢ in 4Q14, with share base diluted by 51% over the year to 3,184m shares.

Group proposed first and final DPS of US0.05¢ (FY13: US0.04¢).

At $0.063, Vallianz is valued at 5.9x trailing P/E and 0.7x P/B. Valuations are in line with offshore services peers, but we think the company may be in a relatively tougher position with its huge debt pile and narrowing margins.