Kim Heng Offshore & Marine reported a 44% YoY drop in revenue to S$11.2m and a net loss of S$2.8m in 2Q15, compared to net profit of S$1.6m in 2Q14. 1H15 saw a net loss of S$1.7m vs. our full year forecast of S$4.3m net profit; the street was going for S$7.1m net profit. Gross profit margin was only 9.1% in 2Q15 vs. 30.2% in 2Q14, as the group undertook lower margin jobs. Looking ahead, the group is expanding its crane leasing business as it expects the offshore & marine industry to remain challenging in the next 12 months. With the weak results and poor outlook, we lower our earnings estimates and now forecast a net profit of S$0.1m in FY15. As earnings visibility is dim, we switch our PE-based valuation to 1.0x P/B, resulting in a fair value estimate of S$0.13 (unchanged from before). Maintain HOLD.
Weak 2Q15 results
Kim Heng Offshore & Marine reported a 44% YoY drop in revenue to S$11.2m and a net loss of S$2.8m in 2Q15, compared to net profit of S$1.6m in 2Q14. 1H15 saw a net loss of S$1.7m vs. our full year forecast of S$4.3m net profit; the street was going for S$7.1m net profit. The offshore rig services and supply chain management segment suffered from continued low demand for maintenance of rigs and related goods and services as oil prices remain low (fewer than 20 rigs were serviced in 1H15), while the vessel sales and newbuild segment saw no vessel sales in 2Q15. Also, no rigs were cold-stacked by the group in 2Q15. Gross profit margin was only 9.1% in 2Q15 vs. 30.2% in 2Q14, as the group undertook lower margin jobs.
Ramping up crane leasing business
Kim Heng acquired additional crane assets for its new subsidiary, Kim Heng Heavy Equipment Pte Ltd in 2Q15, so as to complement and expand its crane business. Currently, the group has more than 30 cranes, and we understand that most of the units will be leased to customers in various industries like construction. As the new subsidiary was only set up in Apr, the group expects more substantial contribution towards the end of the year. Meanwhile, yard development at 48 Penjuru Road commenced in 2Q15 and completion is expected to be in 1H16. Capex for this is estimated to be around S$13m, mainly for the building of a warehouse cum office.
Dim earnings visibility; switch to P/B
Looking ahead, the group expects its business to remain challenging in the next 12 months. With the weak results and poor outlook, we lower our earnings estimates and now forecast a net profit of S$0.1m in FY15. As earnings visibility is dim, we switch our PE-based valuation to 1.0x P/B, resulting in a fair value estimate of S$0.13 (unchanged from before). Maintain HOLD.
Kim Heng Offshore & Marine reported a 44% YoY drop in revenue to S$11.2m and a net loss of S$2.8m in 2Q15, compared to net profit of S$1.6m in 2Q14. 1H15 saw a net loss of S$1.7m vs. our full year forecast of S$4.3m net profit; the street was going for S$7.1m net profit. The offshore rig services and supply chain management segment suffered from continued low demand for maintenance of rigs and related goods and services as oil prices remain low (fewer than 20 rigs were serviced in 1H15), while the vessel sales and newbuild segment saw no vessel sales in 2Q15. Also, no rigs were cold-stacked by the group in 2Q15. Gross profit margin was only 9.1% in 2Q15 vs. 30.2% in 2Q14, as the group undertook lower margin jobs.
Ramping up crane leasing business
Kim Heng acquired additional crane assets for its new subsidiary, Kim Heng Heavy Equipment Pte Ltd in 2Q15, so as to complement and expand its crane business. Currently, the group has more than 30 cranes, and we understand that most of the units will be leased to customers in various industries like construction. As the new subsidiary was only set up in Apr, the group expects more substantial contribution towards the end of the year. Meanwhile, yard development at 48 Penjuru Road commenced in 2Q15 and completion is expected to be in 1H16. Capex for this is estimated to be around S$13m, mainly for the building of a warehouse cum office.
Dim earnings visibility; switch to P/B
Looking ahead, the group expects its business to remain challenging in the next 12 months. With the weak results and poor outlook, we lower our earnings estimates and now forecast a net profit of S$0.1m in FY15. As earnings visibility is dim, we switch our PE-based valuation to 1.0x P/B, resulting in a fair value estimate of S$0.13 (unchanged from before). Maintain HOLD.
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