OCBC on 9 Mar 2012
Hoe Leong Corp (Hoe Leong)’s FY11 revenue and net profit came in at were S$81m and S$24m respectively, and were within our expectations. Net revenue increased by 31% YoY due to improvements across all its three segments, while net profit jumped by 236% YoY, driven by a sale-and-leaseback transaction and higher share of results from associates/JVs. Excluding the two abovementioned items, Hoe Leong’s pretax profit would have fallen by 67% to S$2.2m (FY10: S$6.4m), mainly due to lower contribution from a vessel which was off-hire for about five months. We keep our FY12F projections largely unchanged, but raised our valuation peg to 5x (previously 3.5x) on improved market sentiments. This pushes up our fair value estimate to S$0.29 (previously S$0.20). Maintain HOLD.
FY11 net profit boosted by sale of property
Hoe Leong Corp (Hoe Leong)’s FY11 revenue and net profit came in at S$81m and S$24m respectively, and were within our expectations. Net revenue increased by 31% YoY due to improvements across all its three segments, while net profit jumped by 236% YoY, driven by a sale-and-leaseback transaction and higher share of results from associates/JVs. Excluding the two abovementioned items, Hoe Leong’s pretax profit would have fallen by 67% to S$2.2m (FY10: S$6.4m), mainly due to lower contribution from a vessel which was off-hire for about five months.
Korean plant kicking in
With the completion of Korea Crawler Track Ltd, a manufacturing facility for the group’s house-brand products, the group should see growth and margin improvement going forward. Besides cost savings, having control over the manufacturing process would also enable the group better manage its supply and distribution and in time gain market share over ‘pure distributors’ who rely solely on equipment manufacturers for their supply.
Transition into an Oil & Gas Player
The group’s transition into an offshore oil & gas player is still in the early stages. It currently operates one PSV and one barge, and has four AHTS and 18 oil tankers under two JVs. The next stage of growth is to demonstrate its operational capabilities and establish a decent track record, such that it is able to secure quality long-term contracts with oil companies. This may take several years. In the meantime, we keep our FY12F estimate largely unchanged, but raise our valuation peg to 5x (previously 3.5x) on improved market sentiments. This pushes up our fair value estimate to S$0.285 (previously S$0.20). Maintain HOLD.
Hoe Leong Corp (Hoe Leong)’s FY11 revenue and net profit came in at S$81m and S$24m respectively, and were within our expectations. Net revenue increased by 31% YoY due to improvements across all its three segments, while net profit jumped by 236% YoY, driven by a sale-and-leaseback transaction and higher share of results from associates/JVs. Excluding the two abovementioned items, Hoe Leong’s pretax profit would have fallen by 67% to S$2.2m (FY10: S$6.4m), mainly due to lower contribution from a vessel which was off-hire for about five months.
Korean plant kicking in
With the completion of Korea Crawler Track Ltd, a manufacturing facility for the group’s house-brand products, the group should see growth and margin improvement going forward. Besides cost savings, having control over the manufacturing process would also enable the group better manage its supply and distribution and in time gain market share over ‘pure distributors’ who rely solely on equipment manufacturers for their supply.
Transition into an Oil & Gas Player
The group’s transition into an offshore oil & gas player is still in the early stages. It currently operates one PSV and one barge, and has four AHTS and 18 oil tankers under two JVs. The next stage of growth is to demonstrate its operational capabilities and establish a decent track record, such that it is able to secure quality long-term contracts with oil companies. This may take several years. In the meantime, we keep our FY12F estimate largely unchanged, but raise our valuation peg to 5x (previously 3.5x) on improved market sentiments. This pushes up our fair value estimate to S$0.285 (previously S$0.20). Maintain HOLD.
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