Kim Heng Offshore & Marine - OCBC Investment 2016-08-17: Yard development at 48 Penjuru completed

Kim Heng Offshore & Marine - OCBC Investment 2016-08-17: Yard development at 48 Penjuru completed KIMHENG OFFSHORE&MARINE HLDLTD 5G2.SI

Kim Heng Offshore & Marine - Yard development at 48 Penjuru completed

  • Quiet market.
  • Still keen on Iran.
  • Lower FV. 

Low volume of work; $1.4m net loss in 2Q16 

  • Kim Heng Offshore & Marine reported a 31% YoY drop in revenue to S$7.7m and a net loss of S$1.4m in 2Q16, such that 1H16 saw a net loss of S$3.1m, vs. our full year estimate of -S$5.0m; results were within expectations. 
  • Gross profit margin was 33.4% in 2Q16, similar to 33.1% in 1Q16, and higher than 9.1% in 2Q15. However, the lower turnover meant that the group incurred an operating loss of S$1.2m after deducting administrative and other expenses. 
  • Still, the group managed to generate net cash from operations of about S$1.3m in the quarter and S$2.3m in 1H16.

Updates on business segments 

  • We understand that the group is currently servicing 10-12 rigs that are either warm or cold stacked, and there is still space in the yard for more. Its crane leasing business is still catering to the construction and infrastructure industries, and utilization was about 65-70% in 2Q16. 
  • Recall that the group signed an MOU with the Iran Marine Fund on 9 May 2016 to explore opportunities in Iran. 
  • Management is still keen on potential opportunities there, in which case most probably support from international banks would have to be sought.

Slight net debt position 

  • The group went into a slight net debt position of S$761k in the quarter, but on a more positive note, yard development at 48 Penjuru Road was completed in Jun 2016 and no more major capex is expected going forward. 
  • Under the current tough operating environment, management is also keen to conserve cash. As oil prices remain low, pressure on offshore exploration activities has not alleviated and the demand for maintenance of rigs and related goods and services has not picked up. 
  • Looking ahead, the group expects its business to remain challenging in the next 12 months. 
  • Rolling forward our valuations to FY16/17F with an unchanged P/B of 0.8x, our fair value estimate drops from S$0.093 to S$0.089. Maintain HOLD.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2016-08-17
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.089 Down 0.093