still a great stock, single digit PE (cheapest O& M) stock..  GD LUCK DYODD!!

An Italian love affair (CIMB)

During Vard’s recent non-deal roadshow, we were heartenedto learn of numerous opportunities forthe company in conjunctionwith its new parent, Fincantieri. Stronger orders and toplinesshould compensate for lower margins, providing re-rating catalysts.

We keep our FY13-15 EPS and target price, at 9x CY14 P/E(1 SD above its trading meansince listing). Maintain Outperform. Vard is our top pick among small/mid-cap O& M stocks.

What Happened

We recently hosted non-deal roadshowsfor Vard in Kuala Lumpur and Singapore,after its 1Q13 results. Head of Investor Relations,Mr Holger Dilling,met16institutional funds.Investors wanted to know the potential synergies between Vard and Fincantieri.MrDillingsuggested that there could be numerous joint business opportunities, includinga cross-selling of designs collaboration between the two companies’ marine system businessesand a bigger customer base.Vard’s roadmap, management team and group structure will remain the same.Other topicsincludedmargins, Brazilian operating conditions, order outlook and dividendpolicy.

What We Think

In terms of technology, markets and culture, we see Fincantieri as a much better fit for Vardthan itsprevious parent, the STX Group.Also, Fincantieri has greater vested interests in the future growth of Vard while the STX Group was only interested in selling the company in the later years of ownership.Mr Dilling also pointed out that Fincantieri adheres to the highest standards of corporate governance, due to its exposure to naval vessels whose end-customers are governmental units.

On margins, Vard remains conservative, thoughit believes thatoperations should stabilise by year-end. Weexpect margins to improve in 2014 from a scaling of the learning curve for Transpetro orders as well asinvestment initiatives for its Romanianand Vietnameseyards.Additionally, Vard was markedly positive on its order outlook. Stronger orders and toplines could compensate for lower margins.

What You Should Do

Trading at 7.4x Cy14 P/E and 4.3% dividend yields, investors agreed that the stockis cheap, against local OSV companies. Vard is our top pickamong small/mid-cap O& M stocks.

Financial Summary
Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F
Revenue (KRm) 12,401 11,129 12,861 11,728 13,252
Operating EBITDA (KRm) 2,355 1,473 1,415 1,349 1,590
Net Profit (KRm) 1,594 902 881 828 991
Core EPS (KR) 1.37 0.78 0.75 0.70 0.84
Core EPS Growth 83.5% (43.4%) (3.9%) (5.9%) 19.6%
FD Core P/E (x) 3.63 6.66 6.94 7.37 6.16
DPS (KR) 0.69 0.59 0.23 0.23 0.23
Dividend Yield 13.4% 11.4% 4.3% 4.3% 4.3%
EV/EBITDA (x) 2.39 5.13 5.73 5.36 4.30
P/FCFE (x) 6.18 8.66 5.01 7.02 4.91
Net Gearing (12.0%) 46.3% 59.6% 29.4% 16.6%
P/BV (x) 1.74 1.93 1.82 1.60 1.38
Recurring ROE 55.0% 27.5% 27.0% 23.1% 24.1%
% Change In Core EPS Estimates 0% 0% 0%
CIMB/consensus EPS (x) 1.00 0.87 1.01