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This Week’s “Falling Knife”: Vard Holdings

Vard logoIt wasn’t too difficult to spot this week’s falling knife. Vard Holdings (SGX: MS7) stood out like a sore thumb after its shares sank 17% to S$0.91 on a profit warning.

Vard, a shipbuilder with a market value of S$1b, confessed that its operations in Brazil could have a “negative” effect on the group’s performance. That is until its Niteroi shipyard delivers the last vessel in the current order book.

The company, which also has operations in Norway, Romania and Vietnam, said it remains confident in the long-term potential of the Brazilian market.

Vard, formerly STX OSV Holdings, revealed that margins at the Niteroi operation in Brazil have been hurt by lower productivity and cost overruns. It also had to outsource hull construction to subcontractors, plus shoulder higher start-up cost at its new Vard Promar shipyard.

The company, which is due to report second-quarter numbers next week, has a patchy record in terms of income growth. In 2009, net income was S$23m. It rose to a high of S$348m in 2011 even though revenues had slipped 7% to S$2.7b. Last year, it reported profits of S$198m on sales of S$2.4b.

Vard’s irregular record of income growth appears to stem from fluctuating gross margins, which have been as low as 16% and as high as 38% over the last five years. Presumably this could be a reflection of the product mix that includes ship design, ship repair and conversion and interior outfitting.

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