Kim Heng Offshore & Marine - OCBC Investment 2017-04-27: In The Black

Kim Heng Offshore & Marine - OCBC Investment 2017-04-27: In The Black KIMHENG OFFSHORE&MARINE HLDLTD 5G2.SI

Kim Heng Offshore & Marine - In The Black

  • Aided by disposal gain.
  • Some recovery in 2018? 
  • 0.04x net gearing.

Better 1Q17 results with adhoc work 

  • Kim Heng Offshore & Marine reported a 3% YoY drop in revenue to S$8.5m but saw a 17% rise in gross profit to S$3.4m; gross profit margin was 39.8% in 1Q17 vs. 33.1% in 1Q16 and 10.4% in 4Q16.
  • A few adhoc projects were undertaken in the last quarter, which had relatively higher margins. This led to a net profit of S$344k in 1Q17 compared to net loss of S$1.7m in 1Q16. However, we note that 1Q17 was aided by a S$465k gain on disposal of PPE (barges, as part of fleet renewal programme). 
  • Given the lumpy quarterly earnings, we judge this set of results to be within expectations. The crane leasing business continues to see good utilization rates of 80-90%.

Eyeing a recovery in 2018? 

  • From our understanding, the group did not acquire any distressed assets in 2016 but going forward they are looking to bid for such vessels meant for the offshore oil and gas industry. Some market players are eyeing a base case scenario of industry stabilization in 2017 followed by possible improvements in the industry in 2018.
  • Still, the group expects its business to remain challenging in the next 12 months, given the weak operating environment. 
  • Currently, preIPO investors Credence Partners (17.6% stake) and Zana Capital are still vested in the firm; recall that Credence had invested S$25m in 2013 (average price/share is S$0.20) while Zana had invested S$7.2m (average price /share is S$0.218).

Maintain HOLD for now 

  • As at end 1Q17, Kim Heng had S$18.3m of cash, S$7m of current debt and S$15.3m of non-current debt. 
  • Net gearing remained low at 0.04x, and capex is expected to drop considerably this year. Under the current environment, management is likely to continue to focus on balance sheet health and cashflows. Cost-cutting initiatives continue, though these are likely to be more incremental in nature.
  • Maintain HOLD with fair value estimate of S$0.089, based on 0.8x FY17F book.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-04-27
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.089 Same 0.089