Buy: Swiber
I apologise for the lack of updates for the last few days. CNY and work has been taking a toll on me for my trading job.
I had taken notice on Swiber immediately after Swiber announced their US$146.6 M contract.
Swiber_clinches_record_USD146.6_million_from_Shell_in_Brunei_13Feb2007_.pdf
Told my friend to add it into his watch list (it was already on mine), saw the price increase 20% in Friday, and than up further on Wednesday. Thinking a small correction was coming on Thursday, I saw the price at $1.21 in the morning, and half hour later it was $1.3++. Immediately put my trade for it.
I did my analysis on Wednesday night, that assured me about entering at the stocks price high. I apologise again for informing you all about my trade, but my blog is meant to "teach" my stock pick technique, not for you to mimic my trades.
If you look at the financial statement for the 9m 2006, they only have a 43,196 M revenue. Consistant with the boards expectations, they expect $70M from the Shell contract in FY2007.
Mind you, the company was trading at the range of $0.9 to $1.0, thats the price the market was willing to pay for its current financial performance. However, with this new contract, expected to increase the company's revenue by another 100%, if the company is able to keep its cost down, we could see the company share price double.
"In the medium to long term, share price growth almost always mimic the company's profits growth"
Already, Swiber has already been climbing at a good pace up to that "double" point.
Whats the risk? Swiber needs to keep its cost under control. There is no use of having that $70M contributed on FY2007, but seeing cost increase $70M. However, the company has been showing their ability to keep their financial records strong.
Looking forward to FY 2007, at $1.35 close on 23 Feb 2007, that stock price is still cheap. Although WestComb has set a target of $2.03, I'm not that optimistic. Unless Swiber shows it has the ability to win more of this kind of contracts, the P/E Ratio is definitely going to drop as the share price climbs. Thats why i'm not that optimistic on a $2.00 target, unless more contracts comes its way (which i think its possible)
BUY Swiber, target of $1.90.
Vested on 22 Feb 2007 at $1.30
15 comments:
Hi Pehon,
I am glad you decided to buy into Swiber. The new contract basically adds earnings visibility up till FY 2008 which is the catalyst for the share price to move up. I did make a posting under your China Farm thread on 13 Feb highlighting the merits of this company moving forward. Following my posting, I became vested on 14 Feb at a price of $1.01.
Just to highlight on your posting, I think you meant US$43,196K instead of US$43.196M (refer to your diagram). You also mentioned that P/E will go down when share price goes up, but I think P/E will go up along with share price UNLESS earnings can also improve concurrently. Another point to note is that Westcomb gave a target price of $2.08 on Swiber, not $2.03 (I have the Westcomb report with me).
Personally, I adopt a rolling target for all my companies based on their growth, earnings potential and profit margin. This means that I do not have any intermediate price target or a vesting period; but if Swiber manages to keep costs down and attract more prominent customers, I would say it is good to keep till 2012 ! Visit the company's website at www.swiber.com to download their latest "Cause No Harm" Policy and the CEO's first newsletter on the update on the progress on the US$146.6 project.
Investor relations look promising for this company which just debuted on the Main Board less than 6 months ago. I am keeping an eye on their profit margins though as I noticed a dip to 19% for 9M FY 2006, but the previous Westcomb report attributed this to the use of 3rd party contracted vessels for their EPCIC ops because their own vessels are still under construction.
I assume that once their vessels are ready, profit margins should improve to the range of 25-30%. Another risk is execution risk for a project as large as the one recently awarded. This is the same kind of risk as Labroy when it announced it was building its first oil rig.
I expect Swiber to release FY 2006 results some time this coming week. I will do a full review of the company then and post my views on CNA forum, SI forum and your blog as well.
Am happy to share information and knowledge with you. Keep up the good work !
hi, thanks for the really insightful comment!
And just like to correct you, i was talking about the 9M 06, not the 3Q 06.
I was wondering if its possible for you to send me a copy of your westcomb report?
And yes, i missed the "boat" after you mentioned swiber. I was too caught up with life in general. Should have prioritsed.
And regarding the reduced P/E, Its in my opinion that unless Swiber is able to keep up with more contracts of similiar, if not half the scale of this, the investor anticipation will definitely drop, and hence P/E will be reduced.
Hi Pehon,
It will be a pleasure to send the Westcomb report, but how do I attach it through the blog ? I still a bit suaku when it comes to blogs haha. Or is there an email I can send to ? Actually the "report" is just part of the morning breakfast news from Westcomb where they commented on the US$146.6 contract and revised their target price.
Still, it's a good read. Get back to me on how I should forward you the report k ?
Cheers.
Hi musicwhiz,
Thanks so much! can you send it to my email o n g p e h o n at gmail?
Remove all the spaces. Saving myself from spam
great write-up. i've just added swiber to my watch-list for further research. keep up the good work!
aragorn,
thanks! and regarding your question on when the correction should come, i can't answer that. if i could, i'll be the richest guy in asia.
it's ok. i understand. i think it's coming soon. the last round was in may 2006 - july 2006. very close...
Hi Pehon,
Swiber's FY 2006 are out. Will you be doing a review on it and posting it on your blog ? I myself am reviewing the presentation slides, MD&A, Balance Sheet and Profit and Loss Statement + Capex commitments. I will comment shortly (prob in a day or 2).
Thanks !
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