SINGAPORE (July 26): DBS Group Research is keeping its “hold” call on Vard Holdings with a marginally lower target price of 24 cents, from 25 cents previously.

“Compared to other SGX-listed OSV (offshore support vessel) shipbuilders, Vard has done well in demonstrating its ability to diversify into non-offshore vessels,” says DBS lead analyst Suvro Sarkar in a Wednesday report.

Sarkar notes that Vard’s orderbook has recovered by close to 26% from the lows in 2015, with the majority of order wins since FY16 from non-offshore sources.

“However, we believe this positive factor is already accounted for in its current valuation at approximately 0.8x P/BV,” Sarkar says.

In addition, Sarkar is taking a more cautious view on Vard’s future order win outlook as some of the niche markets that have driven order wins so far – such as exploration cruise vessels and module carrier vessels – are expected to have lower recurring sales potential.

Vard saw its losses widen to NOK 69 million ($11.7 million) for the second quarter ended June, from losses of NOK 53 million a year ago. This was mainly attributable to foreign exchange losses.

See: Vard sinks deeper into the red with 2Q losses of $11.7 mil

After stripping out NOK 35 million of forex losses, Sarkar says Vard’s core losses of NOK 34 million would have been “largely in line with expectations”.

While its earnings meets expectations, Sarkar says the expiry of a Letter of Intent (LOI) signed in January 2017 for a exploration cruise vessel worth NOK 1 billion is “disappointing news”.

“Vard’s management has declined to offer any insight into the specific reasons for the LOI’s expiry, which provides no comfort – especially if the reason was financing-related,” Sarkar says.

For now, Sarkar advises that investors keep an eye out for Vard’s order wins over the next few quarters, especially from non-oil & gas sectors.

“Announcements of better-than-expected order wins could drive the share price higher,” he says.

As at 3.34pm, shares of Vard are trading half a cent lower at 24 cents.