Swiber Holdings

[GreedandFear]

Musicwhiz,
Thanks for the prompt reply. How I wish I have read your blog regarding Swiber earlier.

Greengiraffe, thanks for your insightful analysis.

Having holding Swiber for so long , and losing money ...
There come a point where I have to make a serious decision on whether to hold on to Swiber futher..., or switch to some blue chip like SPH , OCBC etc that pay out regular dividend.

I have decided to take the opportunity to sell it at 0.665 today, with some losses.
I guess these highly speculative play is not too suitable for me.

Some points I've like to highlight regarding Swiber here :

1. Highly leverage and cash tight, just like Olam, but the difference is Swiber do not have a Temasek behind them.

2. The issue of $160 million 7.125% fixed rate note.
Such high borrowing cost will practically eat up all their profits.
The net profit margin of 1Q13 is 8.3%, and they are borrowing at 7.125%, how much is left for the profit margin.

3. Accounts receivable
This is the key point that prompt me to dump Swiber.
In the 1Q13 financial report, they deliberately hide it, but digging further, in the FY2012 report, I found out that the amount have balloned to US$524 millions !
This really have spooked me out .

Consider this, the total revenue 2012 is US$952 millions, net profit is US$62 millions,
but the outstanding amount of receivable amount to US$524 millions !
I think they really have to work harder to recover some of the amounts that the customer owed them.

The above is my opinion for those who wish to plunge their head into this counter.
Good luck.

---

Your comments about Swiber receivables are interesting. I have been very attracted to Kreutz. They seem to be in a sweet spot with significant revenue growth. However, their receivables to Swiber and Swiber related entities keep ballooning leading me to the conclusion that they are basically funding their parent. Seems a no brainer for Swiber to receive funding at zero percent interest versus their borrowing rates quoted in your post.....However, I think that Kreutz shareholders are taking huge credit risk on Swiber without getting paid for it. Hence, I have avoided Kreutz

[CityFarmer]

For those vested and interested...

(not vested)

Swiber secures contracts worth S$551 million

SINGAPORE—Swiber Holdings has secured contracts worth around US$435 million (S$551 million), which the company said bears witness to the industry’s recognition of Swiber’s leading edge solutions.

The company, which provides construction and support services to the offshore oil and gas industry, said the Swiber Group won a contract worth US$330 million while a joint venture company secured a deal worth US$105 million.

http://www.todayonline.com/business/swib...51-million

[kelvesy]

Swiber's Market Cap is around 392mil.

Equity attributable to owners of the company: 581.281mil
Gain on Disposal of Kruez: 90.2mil
Gain on Disposal of PJW 3000 LLC: 16.6mil
Total: 638.081mil
Number of Shares: 608,489,333
Equity per Share: $1.3 (after conversation into SGD)
Current Share Price: $0.635
P/B: 0.48
P/E: 6+ (I'd say cheap for a oil and gas company)

I admit the discount should probably due to the fact Swiber has issued a lot of debt and a large number of trade receivables. The management needs to work on this. Mr. Market might not like that. But I am fairly confident about the management's capability to win big contracts this year, and extra gains from their investments in Vallianz. They have a option to buy Vallianz per share at 4.4cts while Vallianz's share price is around 15cts - 16cts right now. Oil & Gas industry is also looking good for this year. That being said, the business takes up a lot of capex. I hope that those capex pays off well and helps them secure more contracts and make their "quantum leap" theme come true.

[kelvesy]

Dividend yield of 4.5%, based on current share price.

Not too bad - I think!

Swiber is unlocking a lot of value for shareholders, in return, it raises the NAV. To me, that's the margin of safety. As of now, it only has the options but Swiber hasn't exercised those options. When Swiber intends to invest in Vallianz, I believe Swiber has a fair chance to be re-rated due to those gains. Currently, the P/B is also very cheap.

After disposing Kruez, I am thinking that Kruez might be an capital-intensive unit of Swiber, and it was a good idea to dispose it off since Swiber wouldn't be able to support this unit well in the long-term. The disposal was approved by the shareholders recently, with 18% against it, while the rest were in agreement.

   

I added another attachment "Effects: Before and After Disposal"

   

Beyond this disposal, the company is going for Engineering, Procurement, Installation and Construction (“EPIC”) business, supported by 61 young and dynamic vessels.

Currently, it has offices in vietnam, myanmar, brunei, indonesia, singapore, malaysia, inda and middle east.

They are looking into australia, china, west africa and europe markets.

Main bear bug is high trade receivables, debt and negative operating cash in cash flow statement, from what I see. I've wrote into their Investor Relations to ask some of my concerns.

All in all, I see more upside rather down downside at its current price. During the recent selldown, the price has been very resilient as well.

Any views from others?

[kelvesy]

By March, Swiber would be likely to receive the gains from sale of disposal and issue a one-time dividend to reward shareholders. Hopefully, together with the sale of PJW 3000 LLC, they'll use it to pay down their debt ratios. I certainly hope this year would be a changing year for Swiber, win quality contracts using their networks, and be prudent in their balance sheets.

STRONG START TO THE YEAR FOR SWIBER - CLINCHES FIVE CONTRACTS WORTH APPROXIMATELY US$235 MILLION (Feb 3)
http://infopub.sgx.com/FileOpen/Swiber_U...eID=273141

Three contracts awarded to the Swiber Group valued at approximately US$145 million
- Two contracts awarded to Swiber Group’s associate and joint venture company valued at approximately US$90 million

“In terms of industry prospects, the potential in Latin America and Southeast Asia is bright, and Swiber, with our long-standing and established networks in these regions, is in an ideal position to ride on this wave. As we step up our efforts in bidding for the growing E&P work at these locations, we are optimistic of a sustained smooth flow of success.”

[kelvesy]

Anyone who is interested in Swiber should consider reading 3 sub-page of http://www.swiber.com/swiberocs.html:

"EPIC: our core business, OCS Capapabilities, Strong Prospects"

as well as....

corporate newsletter: http://www.swiber.com/corporatenewsletter.html

I read Swyber's August 2013 edition in PDF. I think Swiber has a really motivated work force who are treated well, and they're constantly sharping the way they do their businesses (refer to TOC summit) and creating strategic networks around the world.

corporate videos (a bit old but still as good!): http://www.swiber.com/corporateavp.html
track record of projects: http://www.swiber.com/alternativeenergy.html

Another look at their job openings: http://www.swiber.com/jobopenings.html

You could see they are hiring quite aggressively! Which company would hire so aggressive if they're not confident of their future? The guess is yours!

Still hoping for them to collect trade receivables at a faster pace and reduce their debt.

[Layman A]

Anyone who is interested in Swiber should consider reading 3 sub-page of http://www.swiber.com/swiberocs.html:

"EPIC: our core business, OCS Capapabilities, Strong Prospects"

as well as....

corporate newsletter: http://www.swiber.com/corporatenewsletter.html

I read Swyber's August 2013 edition in PDF. I think Swiber has a really motivated work force who are treated well, and they're constantly sharping the way they do their businesses (refer to TOC summit) and creating strategic networks around the world.

corporate videos (a bit old but still as good!): http://www.swiber.com/corporateavp.html
track record of projects: http://www.swiber.com/alternativeenergy.html

Another look at their job openings: http://www.swiber.com/jobopenings.html

You could see they are hiring quite aggressively! Which company would hire so aggressive if they're not confident of their future? The guess is yours!

Still hoping for them to collect trade receivables at a faster pace and reduce their debt.

Sorry.
I know that I am no longer vested in Swiber , but still like to find out why Swiber Trade Receivable keep increasing at a scary pace

A Trade Receivable which cannot be recovered is a bad debt.
It is not your money until you receive it from the customer.

Swiber keep emphasizing that they have receive how many hundred of millions of order, but failed to explain to us why they cannot get the payment (or rather so slow in getting the payment) .


I relate an example here to show my frustration :

If you can made $10 from a trade of $100, but after the trade you realize that the customer refuse to pay you the $100.

Should you try to press the customer for the payment ?

Or should you quickly borrow another $200 and catch another deal of $200 which can made a profit of $20, but end of the day do not know whether the customer will pay up or not ?

Swiber need to tell us who are the customer that refuse to pay up, and why are they not paying.

I do a quick check here on the latest 3Q13 presentation. The trade receivable has further increase to US$784.8 millions, exceeding their total equity of US$721.8 millions.

[kelvesy]

Hi Layman A,

I share your concerns and the example provided is very useful. This Monday, I've dropped an email to their Investor Relations department to further understand the quality of their customers, what is the possibility of bad debt, method of recognizing profits and the likes. Knowing who their customers help to ascertain whether a payment is likely or not.

So far, they haven't made provisions for any bad debts.

[oys-ter]

By March, Swiber would be likely to receive the gains from sale of disposal and issue a one-time dividend to reward shareholders. Hopefully, together with the sale of PJW 3000 LLC, they'll use it to pay down their debt ratios. I certainly hope this year would be a changing year for Swiber, win quality contracts using their networks, and be prudent in their balance sheets.

Swiber holds 320,250,000 share of kreuz. After selling Kreuz for $0.80, Swiber will be receiving a proceed of S$256,200,000. However, Swiber need to pay back Kreuz for the net receivable it owed to kreuz. The amount is US$ 102,193,971.24. Swiber investment at cost in Kreuz is US$ 121,009,000.

Doing the math,
S$256,200,000 - US$ 102,193,971.24 - US$ 121,009,000 = -S$ 27,267,773

Taking US/SGD = 1.27

It is unlikely to me that swiber will be giving out special dividend after calculating that and the high receivable that Swiber has.

[minimax]

Anyone who is interested in Swiber should consider reading 3 sub-page of http://www.swiber.com/swiberocs.html:

"EPIC: our core business, OCS Capapabilities, Strong Prospects"

as well as....

corporate newsletter: http://www.swiber.com/corporatenewsletter.html

I read Swyber's August 2013 edition in PDF. I think Swiber has a really motivated work force who are treated well, and they're constantly sharping the way they do their businesses (refer to TOC summit) and creating strategic networks around the world.

corporate videos (a bit old but still as good!): http://www.swiber.com/corporateavp.html
track record of projects: http://www.swiber.com/alternativeenergy.html

Another look at their job openings: http://www.swiber.com/jobopenings.html

You could see they are hiring quite aggressively! Which company would hire so aggressive if they're not confident of their future? The guess is yours!

Still hoping for them to collect trade receivables at a faster pace and reduce their debt.

Sorry.
I know that I am no longer vested in Swiber , but still like to find out why Swiber Trade Receivable keep increasing at a scary pace

A Trade Receivable which cannot be recovered is a bad debt.
It is not your money until you receive it from the customer.

Swiber keep emphasizing that they have receive how many hundred of millions of order, but failed to explain to us why they cannot get the payment (or rather so slow in getting the payment) .


I relate an example here to show my frustration :

If you can made $10 from a trade of $100, but after the trade you realize that the customer refuse to pay you the $100.

Should you try to press the customer for the payment ?

Or should you quickly borrow another $200 and catch another deal of $200 which can made a profit of $20, but end of the day do not know whether the customer will pay up or not ?

Swiber need to tell us who are the customer that refuse to pay up, and why are they not paying.

I do a quick check here on the latest 3Q13 presentation. The trade receivable has further increase to US$784.8 millions, exceeding their total equity of US$721.8 millions.

The reason why Swiber's level of A/R is so high is due to their revenue recognition policy.

Usually, revenue is recognized when customers are billed. For Swiber, revenue is recognized before customers are billed (except when Swiber's revenue recognized based on the percentage-of-completion method coincide with billing of customer based on project milestone).

For a fuller explanation of how the whole thing works, pls wait for user kelvesy's reply from Swiber IR.