Kim Heng Offshore & Marine - OCBC Investment 2016-02-25: S$4.9m net loss in FY15

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KIMHENG OFFSHORE&MARINE HLDLTD 5G2.SI 

Kim Heng Offshore & Marine: S$4.9m net loss in FY15 

 Core net profit of S$0.9m in 4Q15 

 FY16 to remain challenging 

 Seeking to conserve cash 

Net loss of S$1.5m in 4Q15 

• Kim Heng Offshore & Marine reported a 33% YoY fall in revenue to S$13.7m and a net loss of S$1.5m in 4Q15 vs. net loss of S$1.0m in 4Q14, bringing FY15 net loss to S$4.9m. This is generally in line with our forecast for a S$3.8m net loss in FY15. 
• The group made a S$2.8m provision for doubtful debts and receivables in 4Q15; excluding that and other one-off items, we estimate core net profit of about S$0.9m in the quarter. 
• The group continued to be impacted by low demand for maintenance of rigs and related goods and services, and this is likely to remain so for FY16. 
• As in 3Q15, minor coldstacking work for rigs was done in 4Q15. 

Net cash position of S$9.0m; seeking to conserve cash 

• Bank loans continued to increase in 4Q15, as the group spent at least S$30m on PPE in FY15 for new vessels (tugs and barges for replacement purposes), cranes for the leasing business, as well as yard development for No. 48 Penjuru Road. 
• As of end FY15, the group was in a net cash position of S$9.0m. 
• Looking ahead, the group is seeking to conserve cash under the current tough operating environment. 
• On its part, it has started on cost-cutting initiatives which have led to a fall in administrative costs. 

0.3 S cent dividend for FY15 vs. 0.5 S cent in FY14 

• Yard development at 48 Penjuru Road is ongoing and completion is expected to be in 1H16. 
• Recall that the group had earlier reached an agreement with JTC to extend the lease of its yard at 9 Pandan Crescent by 20 years commencing on 1 Jan 2016. 
• For 2016, Kim Heng expects the business to remain challenging, and will continue to explore diversification opportunities into the maritime and marine infrastructure sector. 
• Given the depressed valuations of the sector, we lower our P/B from 1.0x to 0.8x FY16F for the stock, resulting in a lower fair value estimate of S$0.096. Maintain HOLD. 
• Meanwhile, the group has declared a final dividend of 0.3 S cent compared to 0.5 S cent in FY14. 

Low Pei Han CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-02-25

OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.096 Down 0.13