KS Energy (KSE) reported a 27.6% YoY rise in revenue to S$153.4m and a net profit of S$1.1m in 1Q13, vs a net loss of S$315k in 1Q12. Though the group’s operating profit went into the red again after four previous quarters in the black, we understand that operating profit would have been about S$8.3m had it not been for a one-off foreign exchange loss from the Titan 2 disposal. We estimate core net profit of about S$0.4m in 1Q13. Overall, the group expects business and operating conditions this year to “remain similar” to 2012. We review the valuations of KSE’s closest comparables on the SGX, and note that the average P/Book valuation is about 0.7x. We ascribe a ~20% premium to arrive at a 0.85x P/Book for KSE due to its integrated operations which are larger in scale in comparison to some of its peers. As such, our fair value estimate falls to S$0.50, based on 0.85x FY13/14F NTA. Maintain HOLD.
Core net profit of S$0.4m in 1Q13
KS Energy (KSE) reported a 27.6% YoY rise in revenue to S$153.4m and a net profit of S$1.1m in 1Q13, vs a net loss of S$315k in 1Q12. Though the group’s operating profit went into the red again after four previous quarters in the black, we understand that S$5.8m of the group’s “other operating expenses” relates to one-off foreign exchange losses from the disposal a jointly-held asset. Excluding this, operating profit would have been ~S$8.3m. Meanwhile, about S$6.5m of the group’s share of results of jointly controlled entities relates to the disposal gain. Hence the net impact from the disposal is ~S$0.7m. We hence estimate core net profit of about S$0.4m in 1Q13.
Update on assets
The jointly owned asset that was sold was the KS Titan 2. It was disposed for US$42m (~S$52m), and the buyer was Hercules Oilfield Services. With this development, KSE currently has three offshore jack-up rigs seven land rigs and four workover rigs. In addition, it has two jack-ups under construction at Cosco. The first is expected to be delivered around end of this year or early next year, and the second one about five months later.
Lowering fair value; maintain HOLD
Looking ahead, management believes that the distribution business will continue to be an important contributor the group’s overall performance this year. Overall, the group expects business and operating conditions this year to “remain similar” to 2012. We review the valuations of KSE’s closest comparables on the SGX, and note that the average P/Book valuation is about 0.7x. We ascribe a ~20% premium to arrive at a 0.85x P/Book for KSE due to its integrated operations which are larger in scale in comparison to some of its peers. As such, our fair value estimate falls to S$0.50, based on 0.85x FY13/14F NTA. Maintain HOLD.
KS Energy (KSE) reported a 27.6% YoY rise in revenue to S$153.4m and a net profit of S$1.1m in 1Q13, vs a net loss of S$315k in 1Q12. Though the group’s operating profit went into the red again after four previous quarters in the black, we understand that S$5.8m of the group’s “other operating expenses” relates to one-off foreign exchange losses from the disposal a jointly-held asset. Excluding this, operating profit would have been ~S$8.3m. Meanwhile, about S$6.5m of the group’s share of results of jointly controlled entities relates to the disposal gain. Hence the net impact from the disposal is ~S$0.7m. We hence estimate core net profit of about S$0.4m in 1Q13.
Update on assets
The jointly owned asset that was sold was the KS Titan 2. It was disposed for US$42m (~S$52m), and the buyer was Hercules Oilfield Services. With this development, KSE currently has three offshore jack-up rigs seven land rigs and four workover rigs. In addition, it has two jack-ups under construction at Cosco. The first is expected to be delivered around end of this year or early next year, and the second one about five months later.
Lowering fair value; maintain HOLD
Looking ahead, management believes that the distribution business will continue to be an important contributor the group’s overall performance this year. Overall, the group expects business and operating conditions this year to “remain similar” to 2012. We review the valuations of KSE’s closest comparables on the SGX, and note that the average P/Book valuation is about 0.7x. We ascribe a ~20% premium to arrive at a 0.85x P/Book for KSE due to its integrated operations which are larger in scale in comparison to some of its peers. As such, our fair value estimate falls to S$0.50, based on 0.85x FY13/14F NTA. Maintain HOLD.
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