Swiber

Swiber: 2Q14 turned in net loss of US$9m (4Q13: US$30.2m), as revenue slipped 6% to US$200.3m, bringing FY14 earnings to US$31.2m (-66%) and revenue to US$726.5m (-30%), well below street estimates.

For the year, top line was dragged by the absence of significant contribution from ongoing projects substantially recognised in FY13, mainly derived in South Asia (-53%) and South East Asia (-37%).

From under absorption of fixed costs, gross margin crashed 14 ppts to 2.4%.

Notably, bottom line was lifted by a one-time disposal gain of $101.8m. Excluding that, Swiber would have reported a net loss of ~US$80m, weighed by higher fair value loss on share options (US$22.6m) and increased finance expenses (+40%) from higher borrowings, partially offset by lower admin expenses (-30%) from the organisational restructuring, share of profits from associates (+40.7%) and lower non-controlling interests (-85%).

Order book stood at US1.4b.

Net gearing spiked from 1.24x to a staggering 1.75x. As a gauge, interest expenses attributed to an unhealthy 9% of revenue and exceeded gross profit.

Management of the EPIC (Engineering, Procurement, Installation and Commissioning) service provider is of the view that the group would be less affected by the O&G industry’s capex cuts and are better positioned to capitalise on future bidding opportunities, given its focus on shallow water field developments.

However, we opine that an epic turnaround is gravely required for Swiber to make any profits in FY15, or risk being drowned by rising costs and burgeoning debt.

It is no wonder that at the current price, Swiber is valued at a massive 92% discount on its book value of $0.924.