Kim Heng Offshore & Marine - OCBC Investment 2017-08-22: Cease Coverage

Kim Heng Offshore & Marine - OCBC Investment 2017-08-22: Cease Coverage KIMHENG OFFSHORE&MARINE HLDLTD 5G2.SI

Kim Heng Offshore & Marine - Cease Coverage

  • Weak 2Q17.
  • Purchased distressed assets.
  • Recovery to take time.

Net loss in 2Q17 

  • It has been a tough time for the Offshore & Marine industry as oil prices have not picked up considerably enough to spur capital expenditure in the oil and gas sector. In 2Q17, Kim Heng Offshore & Marine saw a 4% YoY fall in revenue to S$7.4m and a net loss of S$2.8m, after a S$0.3m net profit in 1Q17. 
  • Demand for maintenance of rigs and related goods and services has remained low during the current protracted downturn of the O&G industry, and there are still little signs of recovery for now.
  • Gross profit margin was 17% in 2Q17 vs. 33% in 2Q16, and the decrease was mainly due to a fall in contribution from the higher-margin offshore support services segment.

Capitalising on the downturn 

  • Still, against this backdrop of uncertainty, less leveraged players are looking for opportunities.
  • As mentioned in our earlier report (Kim Heng Offshore & Marine: In The Black), Kim Heng did not acquire any distressed assets in 2016 but are looking to bid for such vessels meant for the offshore oil and gas industry. Indeed, in 2Q17 Kim Heng purchased three 130-ton bollard pull AHTS vessels at US$9.6m that were previously valued at about US$33.0m per vessel. These were from the bank sale of the pledged assets of Swiber Holdings, and will be used to perform tow services for Kim Heng’s clients’ jack-up rigs and salvage operations.

Net gearing of 0.2x 

  • As at end 2Q17, Kim Heng had S$8.5m of cash, S$7.7m of current debt and S$19.6m of non-current debt, with a net gearing of 0.2x. 
  • 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. Management will also continue to explore diversification opportunities into the maritime and marine infrastructure sector. 
  • With an internal reallocation of resources, we are ceasing coverage on the stock.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-08-22
OCBC Investment SGX Stock Analyst Report CEASE Maintain HOLD 99998 Same 0.089