Swissco’s 2Q09 revenue surged 68% y-o-y to S$19.9m, beating our forecast of S$16.4m, due to earlier than expected vessel deliveries. Headline net profit of S$9.4m (+64% y-o-y) included one-off items such as disposal gains of S$4.9m from available-for-sale financial assets and PPE, and a forex loss of S$0.4m. Excluding these, Swissco’s 2Q09 recurring net profit would be c. S$5.0m (+27% y-o-y), in line with our projection. Gross margin of 49.5%, while down c. 6ppt y-o-y and q-o-q, is still within historical range of 48-56%. However, operating margin dipped >10ppt on a y-o-y and q-o-q basis mainly due to 1) higher accrual of performance bonus, and 2) a S$1.9m impairment of receivables – we understand this is due to management’s more conservative stance.

Net gearing as of end June 2009 stood at 0.15x vs. 0.23x at end 1Q09 as cash of S$6.5m was raised during the quarter from disposal of PPE and 8m shares in Swiber Holdings. These proceeds as well as secured bank loans are expected to be sufficient to cover the group’s funding requirements for its outstanding capex program.

We are keeping our FY09/10 recurring net profit forecasts and our fair value for Swissco of S$0.84 unchanged. This is based on 7x recurring FY09 PE for its core business, and its 5.3% stake in Swiber, pegged to DBS Vickers’ fair value of S$0.60 per Swiber share. Maintain BUY on Swissco.