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We initiate coverage on liftboat builder Triyards with a BUY and SGD0.77 TP (100% upside) based on 6x FY15F P/E (small-/mid-cap SGX-listed O&G firms’ average: 7.29x). A calculated net orderbook of USD380m provides 15 months’ earnings visibility. Ezion could potentially award USD150m in contracts, upon which its 29.5m warrants in the counter will vest. Valuations are attractive at 3.1x/2.6x FY15F/16F P/Es, 3x EV/EBITDAs, 0.4x P/BVs and 2.5% yield. |
Triyards focuses on building liftboats, which are recession-resilient, shallow-water production assets.
Photo: CompanyTop-notch builder with a solid track record. Triyards, a technologically-competent builder, has delivered seven liftboats to date.
It also delivered Ezra’s (EZRA SP, NEUTRAL, TP: SGD0.85) Lewek Constellation – an ice class, deep water multi-lay vessel with 3,000-tonne heavy lift capability, the highest specification vessel in its class in the world.
Focused on liftboats, which are recession-resilient, shallow water assets. Triyards’ strategy is to focus on liftboats, which are recession-resilient, shallow water production assets. Unlike marginal deepwater fields, which are now unprofitable, shallow water oil production is still highly economical.
We believe there is a huge potential for the liftboat market in South-East Asia, given that there are only eight liftboats here vs 149 liftboats in the Gulf of Mexico.
Net orderbook at USD380m, with USD150m of potential contracts. We calculate Triyards’ net orderbook at c.USD380m, which would cover 15 months of FY15 shipbuilding revenue. In addition, Ezion (EZI SP, BUY, TP: SGD2.18) could potentially award USD150m worth of contracts to the firm, upon which its 29.5m Triyards warrants will vest, which could turn the former into a strategic partner upon exercise.
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Worst-case scenario more than priced in. Our conservative bear-case valuation still offers a 66% upside. This scenario assumes Ezion does not award Triyards with the USD150m contracts and if USD100m worth of contracts are cancelled.
Key risks. Some of the key risks include prolonged low oil prices that could lead to delays in delivery or even contract cancellations, 50% customer concentration in Ezion and negative market perception resulting from the majority ownership stake held by Ezra, even though the orderbook has a minimal <3% exposure to the latter.
Triyards is also run independently of Ezra, with only a single Ezra director on its board.
