Kreuz Holdings

Kim Eng on 19 June 2012

Background: Kreuz Holdings is an integrated subsea service provider to the offshore oil and gas industry. It was spun out of Swiber Group and listed on the Catalist in July 2010. Its key businesses include (1) subsea construction and installation solutions, and (2) inspection, repair and maintenance (IRM) of existing offshore production and pipeline facilities.

Recent developments: Kreuz recently won a series of contracts worth a total of USD142m in value, almost equivalent to its revenue for the entire year of FY11. This would add on to its last reported orderbook figure of USD120m as at 1Q12. The contracts came from Swiber Group for subsea installation works and from a third-party client for the provision of Remotely Operated Vehicle services.

Granted first right of refusal from Swiber. Swiber has granted Kreuz a first right of refusal for provision of subsea services for the former’s contracts and also for chartering its key subsea assets. Contracts from Swiber and related parties accounted for 46% of its FY11 revenue. Kreuz’s contract wins came days after Swiber secured a series of orders worth over USD830m in value, bumping the latter’s orderbook to above USD1.8b. Swiber’s strong order win momentum should bode well for Kreuz.

Third-party contracts flowing in. What is more noteworthy is that Kreuz is gaining traction in securing third-party contacts, which would reduce its reliance on its parent. The proportion of third-party contracts grew from 39% of total revenue in FY10 to 54% in FY11. In terms of absolute figures, this was a four-fold jump from USD21.4m in FY10 to USD83.1m in FY11.

Growing its own fleet. Kreuz recently spent SGD7.9m to purchase a diving support vessel. The money was part of the SGD16.6m raised from its share placement exercise in April. The company plans to grow its own fleet to shield itself from fluctuating charter rates in vessel leasing.

Valuations unjustified. The stock currently trades at consensus FY12F PER of only 4.3x, close to its book value, and generates relatively high ROE of 24%. The slew of strong orders secured should lend support to its FY12F and FY13F results. In the light of this, current valuations seem unjustified.