|
|
What Happened
Swissco and its JV, Union Offshore (a company incorporated in Republic Marshall Islands), have secured a charter contract for up to seven years to support and oil company in Asia Pacific.
The rig is expected to be deployed initially in the offshore oil & gas fields in Asia Pacific around 1Q15. Concurrently, Swissco’s OSV division also secured a chartering contract worth US$5m for a multi-purpose vessel for its Middle East operation.
What We Think
It is good that Swissco is diversifying its asset portfolio beyond Mexico. Including the current rig, Swissco has a fleet of nine rigs and is on track to meet its target of 15 units by end-2015. Its JV, Union Offshore, is one of the partners that Swissco has worked with for its first accommodation rig, Strategic Excellence.
We estimate the capex for the new rig to be US$50m and a net profit of c.US$10m p.a., based on 30/70 equity financing and depreciation of 15 years. Swissco’s stake of profit will be US$5m. The rig is being refurbished in a Middle East yard. With this, Swissco has eight drilling rigs operating in Mexico, one in Middle East and one in Asia Pacific (North Asia).
What You Should Do
Accumulate Swissco shares. Swissco is releasing its results on 12 Nov. It will adopt the books of Scott & English based on reverse accounting, incorporating two months of consolidation between the two from Aug-Sep. Earnings consolidation from the enlarged entity will be more significant in 4Q14 with the addition of the last four Ensco rigs that Swissco announced in Aug 14, which started contributing in Oct 14. However, we highlight that there could be a one-off negative goodwill write-off of c.S$30m in 4Q14 (to be announced in Feb 15). Our earnings have not factored in this.
Recent story: SEMBCORP INDUSTRIES, SWISSCO: Top big-cap pick & small-cap pick
