Kim Heng Offshore & Marine - OCBC Investment 2017-03-03: Conserving cash

Kim Heng Offshore & Marine - OCBC Investment 2017-03-03: Conserving cash KIMHENG OFFSHORE&MARINE HLDLTD 5G2.SI

Kim Heng Offshore & Marine - Conserving cash

  • Impairments in 4Q16.
  • Business activity remains low.
  • Capex to drop.

Core net loss of S$8.5m in FY16 

  • Kim Heng Offshore & Marine recently reported a 45% YoY fall in revenue to S$7.5m and a net loss of S$13.0m in 4Q16, vs. net loss of S$1.5m in 4Q15, as earnings were dragged by asset impairments of S$8.3m. 
  • Excluding this and other one-offs, we estimate full year core net loss to be S$8.5m, compared to -S$2.8m in FY15. This was mainly due to lower revenue (gross profit margin remained at 26.8% vs. 26.2% in FY15), as there were no vessel newbuild projects in 2016, and the offshore rig services and supply chain management segment saw a low demand for rig maintenance and related goods and services.

Operating environment remains tough 

  • There is a slight pick up in enquiries for the vessel chartering segment, as well as for maintenance services, but a more significant recovery in business activity may only be towards the later part of this year. 
  • From now till then, Kim Heng continues to undertake cost-cutting measures while seeking to grow its other segments such as the crane business. Currently, the crane leasing business mainly caters to the construction sector, and utilization was good at 80-90% in 4Q16.
  • Capex to drop considerably this year For FY16, Kim Heng saw net operating cash inflow of S$2m, investing outflow of S$4.5m and financing outflow of S$13.3m. Recall that the group previously undertook finance leases and term loans to help fund the investment of new property, plant and equipment. 
  • As at FY16, the group was in a net debt position of S$4.9m, but expects capex to drop off considerably for FY17.
  • Meanwhile, the group redesignated Mr. Melvin Tan as Commercial & Operations Director in mid Jan; he was previously the General Manager of Supply Chain Management of the group. In early Dec last year, there was also a change in CFO.
  • Maintain HOLD with fair value estimate of S$0.089, based on 0.8x FY17F book. A 0.07 S cent dividend has been declared, compared to 0.3 S cent in FY15.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-03-03
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.089 Same 0.089