Singapore | Industrials

Asia Pacific Equity Research

KIM HENG OFFSHORE & MARINE | HOLD

MARKET CAP: USD 75M

5 May 2015
Company Report

AVG DAILY TURNOVER: USD 0.1M

ACTIVITIES SLOW DOWN

HOLD (maintain)

Results in line with our expectations

Slowdown in activity
Net cash position of S$35m

Fair value

S$0.13

add: 12m dividend forecast

S$0.005
S$0.14

versus: Current price

12m total return forecast

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 streets expectations
(Bloomberg FY15F consensus PATMI: S$10.4m). On a QoQ basis,
revenue fell 20% while core net profit was S$1.2m vs. 4Q14s
S$1.9m.

-4%

Analysts
Low Pei Han, CFA (Lead) +65 6531 9813
lowph@ocbc-research.com
Andy Wong Teck Ching, CFA +65 6531 9817
andywong@ocbc-research.com
Key information
Market cap. (m)

S$100.1 /
USD75.2

Avg daily turnover (m)

S$0.1 /
USD0.1

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. 4Q14s 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.

Avg daily vol. (m)

0.3

52-wk range (S$)

0.118 - 0.295

Free float (%)

47.7

Shares o/s. (m)

710.0

Exchange

SGX

BBRG ticker

KHOM SP

Reuters ticker

KIMH.SI

SGX code

5G2

GICS Sector

Industrials

GICS Industry
Top shareholder

Marine
KH Group- 42.1%

Relative total return

1m

3m

Company (%)

12

-5

12m
-42

STI-adjusted (%)

10

-9

-53

Price performance chart

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 rerating of oil and gas stocks, we increase our peg from 7.5x to 9x, but
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.

Share Price (S$)

Index Level

0.24

4400

0.21

3840

0.18

3280

0.15

2720

0.12
0.09
Nov-14

2160
1600
Dec-14

Jan-15

Feb-15

Fair Value

Mar-15

KHOM SP

Apr-15
FSSTI

Sources: Bloomberg, OIR estimates

Industry-relative metrics

Key financial highlights

Year ended 31 Dec (S$m)

FY13

FY14

FY15F

FY16F

Revenue

84.8

78.0

70.9

77.9

Gross profit

36.5

27.0

19.8

23.4

0.0

0.0

0.0

0.0

Percentile

Associates and JVs

0th

13.8

8.1

4.3

7.0

Beta

Core EPS (cents)

2.5

1.1

0.6

1.0

ROE

Cons. EPS (cents)

na

na

1.5

1.0

PE

4.5

17.8

23.3

14.3

PB

Core PATMI

PER (x)
Core PER (x)
ROIC (%)
Dividend yield (%)

5.6

12.4

23.3

14.3

27.1

5.4

4.2

6.5

2.0

3.5

3.5

3.5

25th

50th

75th

100th

Mkt Cap

Industry Average

Company

Note: Industry universe defined as companies under identical GICS classification

listed on the same exchange.
Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MCI (P) 005/06/2014

OCBC Investment Research

Singapore Equities

Exhibit 1: Quarterly financial highlights

Yr end Dec
Revenue
Cost of sales
Gross Profit

1Q14
(S$m )
23.6
-13.8
9.8

1Q15
(S$m )
16.3
-11.4
4.9

% Chg
(YoY)
-31.1%
-17.5%
-50.1%

4Q14
(S$m )
20.5
-14.4
6.1

% Chg
(QoQ)
-20.7%
-21.0%
-19.9%

0.5
-0.5
-4.6
-0.5

0.9
-0.4
-3.5
-0.4

85.5%
-4.1%
-23.2%
-15.0%

1.4
-0.3
-5.2
-3.9

-36.3%
68.4%
-31.7%
-89.8%

4.7
0.0

1.4
0.0

-70.8%
NM

-1.9
0.0

NM
NM

-0.1
4.6

-0.1
1.3

-21.5%
-71.9%

-0.1
-2.0

-22.9%
NM

3.9
3.9

1.1
1.1

-71.6%
-71.6%

-1.0
-1.0

-208.7%
-208.7%

41.6%
20.1%
16.5%

30.1%
8.5%
6.8%

Other income
Distribution expenses
Administrative expenses
Other expenses
Operating profit
Share of results of assoc and JVs
Net finance costs
Profit before tax
Net profit
PATMI
Gross Profit Margin
Operating Margin
Net Profit Margin

29.8%
-9.1%
-5.0%

So urce: Co mpany

Exhibit 2: Sum-of-parts valuation

Method

Core repair, maintenance business

8.5x blended P/E

Add: 2015F net cash

Shares outstanding (mil)

Earnings (S$m)
FY15F
FY16F
4.3

7.0

Value
S$m

Value/share
S$

50.8

0.07

38.0

0.05

710

Fair value estimate (S$)

0.13

Source: OIR estimates

OCBC Investment Research

Singapore Equities

Company financial highlights

Income statement
Year ended 31 Dec (S$m)

FY13

FY14

FY15F

FY16F

Revenue
Gross profit
Operating profit
Associates and JVs
Pre-tax profit
Tax
Profit after tax
Minority interests
PATMI
Core PATMI

84.8
36.5
21.1
0.0
20.3
-3.3
17.1
0.0
17.1
13.8

78.0
27.0
5.9
0.0
5.8
-0.2
5.6
0.0
5.6
8.1

70.9
19.8
4.8
0.0
4.6
-0.3
4.3
0.0
4.3
4.3

77.9
23.4
7.8
0.0
7.6
-0.6
7.0
0.0
7.0
7.0

Balance sheet
As at 31 Dec (S$m)

FY13

FY14

FY15F

FY16F

Cash and cash equivalents

Other current assets
Property, plant, and equipment
Total assets
Debt
Current liabilities excluding debt
Total liabilities
Shareholders equity
Total equity
Total equity and liabilities

3.5
30.7
57.8
92.0
8.2
20.4
34.5
57.5
57.5
92.0

49.9
16.9
63.2
130.0
8.1
18.0
32.0
98.1
98.1
130.0

46.2
15.7
68.9
130.9
8.2
18.1
32.1
98.8
98.8
130.9

44.3
17.0
74.2
135.6
8.2
19.3
33.3
102.3
102.3
135.6

Cash flow statement

Year ended 31 Dec (S$m)

FY13

FY14

FY15F

FY16F

Op profit before wc. changes

Net cash from operations
Purchase of PP&E
Other investing flows
Investing cash flow
Financing cash flow
Net cash flow
Cash at beginning of year
Forex effects
Ending cash (incl overdrafts, pledges)

25.7
20.2
-3.1
7.1
4.0
-19.6
4.6
-2.3
0.0
3.5

8.9
20.7
-7.7
4.6
-3.1
28.8
46.4
2.3
0.2
49.9

9.2
10.1
-10.0
1.2
-8.8
-4.0
-2.7
48.9
0.0
46.2

12.7
11.9
-10.0
0.2
-9.8
-4.0
-1.9
46.2
0.0
44.3

Key rates & ratios

FY13

FY14

FY15F

FY16F

Core EPS (cents)

NTA per share (S cents)
Net profit margin (%)
PER (x)
Core PER (x)
Price/NTA (x)
Dividend yield (%)
ROE (%)
ROIC (%)
Net gearing (%)

2.5
10.5
20.2
4.5
5.6
1.3
2.0
29.7
27.1
8.1

1.1
13.8
7.2
17.8
12.4
1.0
3.5
5.7
5.4
-42.6

0.6
13.9
6.1
23.3
23.3
1.0
3.5
4.3
4.2
-38.5

1.0
14.4
9.0
14.3
14.3
1.0
3.5
6.9
6.5
-35.3

Sources: Company, OIR forecasts

*Excludes interim dividend that was declared prior to IPO

Company financial highlights

OCBC Investment Research

Singapore Equities

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The analyst/analysts who wrote this report holds/hold NIL shares in the above security.
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Important disclosures