VALLIANZ HOLDINGS: Earnings growth likely to pickup in Q3 or Q4 2015

Lionel Lim is a remisier and writes a blog, Invest From Bear to Bull

IT IS VERY clear that the oil and gas sectors are undergoing a bear market right now. Companies with big order books and long term chartering contracts are likely to ride out this difficult period.

One of the companies I have been analysing is Vallianz Holdings.

Corporate Profile

VALLIANZ HOLDINGS LIMITED ("Vallianz" and together with its subsidiaries, "the Group") is a provider of offshore support vessels and integrated offshore marine solutions to the oil and gas industry.

Headquartered in Singapore, Vallianz serves oil majors and national oil companies worldwide, and focuses on supporting customers' offshore exploration and production operations in shallow waters.

With a young and modern fleet of 37 offshore support vessels, the Group has been actively expanding its presence and building its network in the major and emerging offshore markets in Asia Pacific, the Middle East, Latin America and West Africa.

Despite presently tougher market environment, Vallianz Holdings Limited has achieved profitable performance, stable fleet utilisation rate, and a stronger order backlog.

Some key corporate developments:

» On 20 July 2015, Vallianz Holdings negotiated an average of 10% cut in chartering rates with a National Oil Company (NOC). Tthe chartering contracts were extended till 2020 including options.

» In December 2014, Vallianz Holdings was awarded a US$97 million time charter to supply a customized Offshore Floating Storage and Supply Vessel to the NOC for up to 5 years.

» On 13 July 2015, the Group secured a time charter worth up to US$300 million to supply two self-elevating platforms to support the NOC’s offshore oil production activities for up to 7 years.

If you have gone through Vallianz Holdings' presentation slides on 12 August 2015, you will note that the charter period for both contracts start in Q3 2015.

» As at July 2015, the total outstanding order book is US$968 million.

	1H2015 (S$’m)
NAV	US$0.0688
Basic EPS	US$0.26
Diluted EPS	US$0.25
Order book (as at 31 July 2015)	US$968 mil
Generated US$11.1 mil free cash flow in Q2 2015 after completing major capex to drive initial growth

Vallianz Holdings Limited have 2 bonds expiring in 2016. The company is likely to seek funding through the debt and capital markets to redeem the bonds.

As long as there is no contract cancellation, in my opinion, Valliance is unlikely to have funding issues.

My View:

» Earnings growth likely to pickup in Q3 or Q4 2015.

» Key risk: Contract cancellation, vessel delivery delay

Chart

However, do note that the above contracts were negotiated and/or renegotiated when oil prices were lower than the peak.

If you have further queries, you can contact me at 90400848 or email me at

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Valliance Holdings' presentation slides and information can be at the SGX website.

VALLIANZ HOLDINGS: Earnings growth likely to pickup in Q3 or Q4 2015

Corporate Profile

» As at July 2015, the total outstanding order book is US$968 million.

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