Red flags ahead for CH Offshore

Despite 43% surge in gains.

According to DBS, CHO delivered a strong start to FY13 with core 1Q net profit of US$9.2m (+43% y-o-y), the highest level since 4QFY10.

Here's more from DBS:

Revenue was up 3% y-o-y on higher fleet utilisation, partially offset by a unit disposed in 3QFY12 to an associate. The outperformance resulted from unexpected short term extensions of two vessels, which had come off their long-term charters in April and July, improved margins and stronger-than-expected interest and associates’ income.

Its balance sheet remains robust with net cash per share of 11.3 US cts, forming 27% of its market cap.

Operating results indicate strengthening charter market; but the conclusion of two high- value charters poses near-term earnings risk. We believe the strong 1Q performance indicates a strengthening charter market, with CHO’s entire fleet being deployed meaningfully, vs 1Q12 for which one large AHTS was unable to secure employment.

Notwithstanding, we flag a near-term earnings risk from the conclusion of the charters of two 12,240bhp AHTS in Latin America (which accounted for 52%/54% of FY11 revenue/gross profit) on the lack of visibility over how soon and at what rates these units can be contracted.

Further, we note that these vessels are scheduled for their maiden five-year mandatory dry-docking in 2013, while current day rates in the same region are 14-38% below previously contracted rates.

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