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

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