Review: Swiber

Swiber recorded a profit after tax of US$3,922,000. Thats a 55.4% growth on the back of a 288.4% increase in revenue. This translated to a 22.9% profit margin in FY 06, versus a profit margin of 42.0% in FY 05. The board has stated that this reduction in profit margin was "mainly due to chartering of third party derrick crane barges and vessels for the installation jobs in Malaysia".

It is my opinion that this increase in cost (and decrease in margin) is due to Swiber's contract that included their non-core business of EPCIC services. That explains their need to "chartering" 3rd parties for installation jobs.

Hence, I believe this reduction in profit margin is not a sign of weakness.

Full year 06 revenue ammounted to US$66.772 M, 262.9% increase, with a 96.5% increase in profit after tax to $12.140M. With just the Shell contract they recently won expecting to contribute $70.5M to FY07's results, together with contracts with BG exploration worth $33.75 M, we are already looking at a healthy revenue growth of 56.13% in FY07.

"A revenue growth of 56.13% growth expected in FY07, remember, we are only 2 months into 2007."

Challenges for Swiber this year. They have to keep their profit margin up, with new ventures into Brunei for Shell expected to increase their infrastructure support cost. It is now up to Swiber to convert that $140M contract into a healthy profit, with good margin.

Barring unforseen circumstances, I expect Swiber to win several other contracts, as their contract with Shell has really put Swiber up a few levels in its industry. Other large oil companies may now have more confidence in Swiber, and award them with more contracts this year.

Maintain BUY, with target of $1.95