SINGAPORE (Aug 22): OCBC Investment Research is ceasing its coverage on Kim Heng Offshore & Marine as the offshore and marine (O&M) industry is not picking up enough to spur capital expenditure in the oil & gas sector.
The group also reported a net loss in 2Q17 of $2.8 million compared to a $0.3 million profit in the previous quarter. Revenue in 2Q17 also saw a 4% y-o-y decline to $7.4 million.
In a Tuesday report, analyst Low Pei Han says, “Demand for maintenance of rigs and related goods and services has remained low during the current protracted downturn of the O&G industry, and there are still little signs of recovery for now.”
Due to a drop in contribution from the higher-margin offshore support services segment, the group reported a drop in gross profit margin to 17% compared to 33% the previous year.
With the uncertainty in the industry, less leveraged players are looking for opportunities.
To recap, Kim Heng did not acquire any distressed assets in 2016, but are looking to bid for vessels meant for the offshore O&G industry.
In 2Q17, the group purchased three 130-tonne bollard pull AHTS vessels worth US$9.6 million ($13.1 million) from Swiber Holdings. The vessels will be used to perform tow services for Kim Heng’s clients’ jack up rigs and salvage operations.
See: Kim Heng O&M acquires 3 AHTS vessels from Swiber for $13.3 mil
The group reported $8.5 million in cash at end-2Q17, as well as $7.7 million of current debt and $19.6 million of non-current debt, with a net gearing of 0.2x.
Hence, with the current situations, Low predicts that the management is likely to continue focusing on balance sheet health and cashflows, alongside cost-cutting initiatives, though likely to be more incremental in nature.
The management says that it will continue to explore diversification opportunities into the maritime and marine infrastructure sector.
“With an internal reallocation of resources, we are ceasing coverage on the stock,” says Low.
In its FY17 forecast, Kim Heng has a PE of 40.2 times and a dividend yield of 1%.
As at 12.28pm, shares in the counter are trading at 6.9 cents.
