Kim Heng Offshore & Marine - OCBC Investment 2015-11-13: Continues with diversification efforts

KIMHENG OFFSHORE&MARINE HLDLTD 5G2.SI

Kim Heng Offshore & Marine: Continues with diversification efforts

 Soft 3Q15 results

 Extends lease at one of its yards

 Leasing cranes and building pilot boats

Kim Heng Offshore & Marine reported a 23% YoY drop in revenue to S$10.6m and a 42% fall in gross profit to S$2.9m in 3Q15. This led to a net loss of S$1.7m in the quarter, such that 9M15 saw a net loss of S$3.5m, below expectations.

The offshore rig services and supply chain management segment continued to be impacted by low demand for maintenance of rigs and related goods and services, but as more fabrication work was undertaken in 3Q15, gross profit margin was higher on a sequential basis at 26.9% vs. 9.1% in 2Q15 when more lower-margin procurement work was carried out.
Minor cold-stacking work for rigs was done in 3Q15.

For the relatively new crane leasing business, the group saw utilisation rate of about 60-70% in the quarter, and this segment turned in a profit for the past two months after initial setting up costs. We estimate that revenue contribution in the quarter from this new business was about S$1.5m.

Meanwhile, Kim Heng has also reached an agreement with JTC to extend the lease of its yard at 9 Pandan Crescent by 20 years starting from 1 Jan 2016, and now expects the yard development work at 48 Penjuru Road to be completed by 1Q16.
In terms of capex for 48 Penjuru, about half of the $15m capex is expected to be spent this year and the remaining next year.

Looking ahead, the group expects its business to remain challenging in the next 12 months, and will continue to explore diversification opportunities in the maritime and marine infrastructure sector. For instance, it is also building three aluminum pilot boats for an overseas customer, besides its foray into the crane leasing business.
Maintain HOLD with fair value estimate of S$0.13 (still based on 1.0x P/B).

Low Pei Han CFA OCBC Securities | http://www.ocbcresearch.com/ 2015-11-13

OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.13 Same 0.13