Kim Heng Offshore & Marine reported a 31% YoY fall in revenue to S$16.3m and a 49% fall in gross profit to S$4.9m in 1Q15, such that the latter formed 25% of our full year estimate. Net profit dropped 72% to S$1.1m, accounting for 26% of our FY15 figure, in line with our expectations. However, this was below the street’s expectations (Bloomberg FY15F consensus PATMI: S$10.4m). Looking ahead, the group expects to help to cold-stack more rigs as industry activity slows down. It expects business to remain challenging in the next 12 months, but at the same time is looking for opportunities, given its net cash position. Maintain HOLD with a slightly higher fair value estimate of S$0.13 (prev. S$0.12).
1Q15 results in line with our expectations
Kim Heng Offshore & Marine reported a 31% YoY fall in revenue to S$16.3m and a 49% fall in gross profit to S$4.9m in 1Q15, such that the latter formed 25% of our full year estimate. Net profit dropped 72% to S$1.1m, accounting for 26% of our FY15 figure, in line with our expectations. However, this was below the street’s expectations (Bloomberg FY15F consensus PATMI: S$10.4m). On a QoQ basis, revenue fell 20% while core net profit was S$1.2m vs. 4Q14’s S$1.9m.
Slowdown in activity
The fall in revenue on a sequential basis was mainly due to lower chartering and towage income, as well as fewer marine offshore support services that were rendered. Gross profit margin was 30.1% in 1Q15, similar to 29.8% in 4Q14, while operating margin was 8.5% vs. 4Q14’s operating loss. According to management, downward pressure on offshore exploration activities has not alleviated and the demand for maintenance of rigs and related goods and services has not picked up. The group will be helping to cold-stack four Ensco rigs in the months ahead, with estimated revenue of S$800k/rig per year. We estimate net margins of 10-15% for such a service. At the same time, the group is looking to secure more work relating to marine infrastructure, and has bought some assets e.g. cranes to undertake such work.
Waiting for opportunities
Looking ahead, management expects its business to remain volatile and challenging in the next 12 months. However, it is in a net cash position and will continue to assess potential merger and acquisition opportunities. As a service company, it also does not have to cope with idle assets during this industry downturn. With the recent re-rating of oil and gas stocks, we increase our peg from 7.5x to 9x, but even with a lower forecasted net cash position of the group, our fair value estimate rises slightly from S$0.12 to S$0.13. Maintain HOLD.
Kim Heng Offshore & Marine reported a 31% YoY fall in revenue to S$16.3m and a 49% fall in gross profit to S$4.9m in 1Q15, such that the latter formed 25% of our full year estimate. Net profit dropped 72% to S$1.1m, accounting for 26% of our FY15 figure, in line with our expectations. However, this was below the street’s expectations (Bloomberg FY15F consensus PATMI: S$10.4m). On a QoQ basis, revenue fell 20% while core net profit was S$1.2m vs. 4Q14’s S$1.9m.
Slowdown in activity
The fall in revenue on a sequential basis was mainly due to lower chartering and towage income, as well as fewer marine offshore support services that were rendered. Gross profit margin was 30.1% in 1Q15, similar to 29.8% in 4Q14, while operating margin was 8.5% vs. 4Q14’s operating loss. According to management, downward pressure on offshore exploration activities has not alleviated and the demand for maintenance of rigs and related goods and services has not picked up. The group will be helping to cold-stack four Ensco rigs in the months ahead, with estimated revenue of S$800k/rig per year. We estimate net margins of 10-15% for such a service. At the same time, the group is looking to secure more work relating to marine infrastructure, and has bought some assets e.g. cranes to undertake such work.
Waiting for opportunities
Looking ahead, management expects its business to remain volatile and challenging in the next 12 months. However, it is in a net cash position and will continue to assess potential merger and acquisition opportunities. As a service company, it also does not have to cope with idle assets during this industry downturn. With the recent re-rating of oil and gas stocks, we increase our peg from 7.5x to 9x, but even with a lower forecasted net cash position of the group, our fair value estimate rises slightly from S$0.12 to S$0.13. Maintain HOLD.
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