Thursday 5 March 2015

KS Energy

OCBC on 3 Mar 2015

KS Energy reported a 40.5% increase in revenue to S$227.3m and a net profit of S$30.1m in FY14 vs net profit of S$23k in FY13. Excluding one-off items such as disposal gains and impairment losses on PPE and non-trade receivables, we estimate recurring net profit to be about S$8.8m for the year vs our forecast of S$3.6m, higher than expectations. However, with the oil price rout, the group could potentially see lower charter rates during contract renewals or maybe even more rig impairments later. If the rig market turns out to be worse than expected, certain units may be left idle as well. Looking ahead, the outlook for the offshore services sector continues to be affected by lower oil prices, and with a re-allocation of resources, we are ceasing coverage on KS Energy.

Hit by impairments and higher depreciation charges 
KS Energy reported a 40.5% increase in revenue to S$227.3m and a net profit of S$30.1m in FY14 vs net profit of S$23k in FY13. Excluding one-off items such as disposal gains and impairment losses on PPE and non-trade receivables, we estimate recurring net profit to be about S$8.8m for the year, higher than our forecast of S$3.6m. In particular, the group saw a S$12.2m impairment on PPE as well as S$5.0m impairment on non-trade receivables in 4Q14; the former relating to the Discoverer 2 land rig and the jack-up accommodation rig, Atlantic Rotterdam. There were also additional depreciation charges relating to depreciation policy revisions. Accounting for about 92.2% of total revenue, the drilling business generated revenue of S$209.5m for FY14 compared to S$144.0m for FY13. The balance 7.8% was from the group's engineering and other businesses.

No official announcement of charter contract for Cosco rig
As for the second jack-up rig from Cosco, recall that the group was expecting to take delivery in 4Q14, but so far there has not been any official announcement of a charter contract yet. According to management, the delivery date for this rig has been pushed back again. With falling jack-up rig utilisation levels, we believe it may be tough securing decent charter rates for this unit.

Ceasing coverage
With the oil price rout, the group could potentially see lower charter rates during contract renewals or maybe even more rig impairments later. If the rig market turns out to be worse than expected, certain units may be left idle as well. The distribution business is also likely to be impacted by lower demand for its goods and services. Looking ahead, the outlook for the offshore services sector continues to be affected by lower oil prices, and with a re-allocation of resources, we are ceasing coverage on KS Energy.

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