Depreciating USD hurts Viking's profit

Although the company's revenue rose 39% YoY to S$23.2mln for 1Q11, the company's gross profit margin was lower at 30% vs. 32.4% in FY10.

Viking's net profit also jumped 42% to S$1.1mln in the same quarter.

In a statement, OCBC Investment Research said that although the first quarter of the year is traditionally a slower period due to festive celebrations and fewer deliveries according to the newbuild schedule, Viking's results “still disappointed” due to the fall in gross profit margin, “a depreciating USD led to a foreign exchange loss from overseas contracts, and a delay in the execution of projects.”

“We understand that the lower gross profit margin was due to a change in business mix in which lower-margin jobs with higher labour content were executed this year. In addition, the currency impact from a depreciating USD led to a foreign exchange loss for overseas contracts,” the analyst said.

Despite the soft 1Q11, Viking expects higher business activities for the next few quarters as it expects new orders to flow in, in addition to an "accelerated schedule" from customers, OCBC disclosed.

The company recently completed the relocation of its business operations in a single facility in February this year at Kian Teck Rd, and expects to reap benefits from the streamlining of operations.

In addition, Viking has begun exploring opportunities to jointly tender for projects, after the acquisition of several complementary businesses last year.

The bank noted that for the first time as a group, Viking participated in trade shows both in and out of Singapore, and observed "increasing opportunities and leads" from such events.

Although OCBC expects the company's revenue to pick up in the next two quarters, it revised its earning estimates to incorporate lower margin assumptions, and updated the market values of the group's quoted equity investments.

The bank is maintaining its Buy rating on the stock although it changed its fair value estimate to S$0.25 from S$0.32.