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Monday, August 25, 2014

Alliance DBS Research downgrades TH Heavy Engineering (Star)

Alliance DBS Research has downgraded TH Heavy Engineering after the 2Q14 financial results were below it and consensus estimates as it reported a net loss.

“Challenging near term outlook with immediate need to replenish orderbook and rising cost pressures. Longer term outlook more positive with US$372mil floating production, storage and offloading (FPSO) contract in hand,” it said on Monday.

Alliance DBS Research downgraded the TH Heavy to Hold and reduce the target price to 95 sen.

TH Heavy reported a net loss of RM6.2mil in 2Q14 and a cumulative loss of RM4.5mil for 1H14...

The research house said TH’s latest orderbook of RM250mil does not provide earnings visibility beyond FY14. ..

Alliance DBS Research also said the FPSO provides steadier long term outlook. The US$372m FPSO contract with Nippon Oil provides TH with much needed longer term earnings visibility.

The project is still in the engineering phase with topside construction activity to start in 4Q14.

“We expect the charter contract to commence in mid-FY16 onwards from our earlier assumption of early-FY16.

“We cut our FY14-FY16 estimates by 38-59% to reflect higher costs of fabrication activities, slower orderbook replenishment pace, and also a later start on the FPSO,” it said.

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