Quality yard at bargain price (DBS)

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but EBITDA margins still at low levels – in line1Q13 core earnings saw 25% sequential improvement

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seen for AHTS marketRobust outlook for subsea and signs of improvement

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end-FY13, expect EBITDA margins to improve next yearOperating issues in Brazil should be largely resolved by

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FY13/14F earnings by 4/6%Maintain BUY TP revised down to S$1.46 as we trim

Highlights

Decent execution in 1Q13.

+25% q-o-q) was in line with our expectations, and would have

been higher if not for a NOK20m net forex loss. Gross margin

normalized to 33.6% (vs. 35.7% in FY12) and EBITDA margin came

in as expected at a low 11.1% (vs. 13.8% in 9M12 and 19% in

FY11), impacted by the persistent operational issues at the Niteroi

yard in Brazil and temporary lower utilisation at the Vietnam yard.Core earnings of NOK188m (-30% y-oy

Our View

Subsea underpins positive outlook for order wins

1Q13 with an orderbook of NOK15.5bn, and has secured close to

NOK3.8bn worth of new orders YTD in FY13, including high value

OSCVs. Outlook for the subsea construction vessel segment remains

robust, and management also notes improvements in AHTS spot

charter rates. Vard remains in the running for Petrobras pipelay

support vessel orders. Demand for larger PSVs continues to be

sluggish though. While OSCV order wins are typically higher in value,

they tend to be lumpy, hence we choose to err on the conservative

side and lower our FY13/14 order win forecasts to NOK11bn/ NOK

13bn from NOK12.5bn/ NOK 14bn previously. Accordingly, we trim

our FY13/14F earnings estimates by 4/6%.. Vard ended

Expect recovery in FY14

of a drag by the end of FY13, and as a result, EBITDA margins are

expected to recover in FY14 by about 1.5ppts from 1Q13 levels. The

other new yard in Brazil is almost 85% complete, and steel cutting

for the LPG carrier orderbook will start from July onwards. Delivery

schedule for these vessels are still on track.. The issues at the Niteroi yard will be less

Recommendation

Trading at 6.5x PE, good entry point

earnings, our TP is lowered to S$1.46, still pegged at 9x FY13PE.

Maintain BUY as Vard remains a key proxy to the buoyant subsea

market, and we believe the weak share price has reflects the

uncertainties (e.g. change in dividend policy) following the entry of

Fincantieri, as well as the possibility of muted earnings growth in

FY13.. In line with the cut in