Kim Heng Offshore & Marine
Riding high on the oil & gas offshore drilling demand
Neutral IPO Price
S$0.25 IPO Statistics
Issue price Total new share issue - Placement tranche - Public tranche Listing status Trading date Lead manager
S$0.25 174.0m 171.0m 3.0m Catalist 20 Jan Noon 22 Jan Canaccord
Post IPO Total issued share Market cap NTA PER FY12
710.0m S$177.5m 11.9 cts 10.3x
Closing date (public)
IPO Watch 17 January 2013
Summary: Kim Heng Offshore & Marine (Kim Heng) is an offshore & marine service provider. The group seeks to raise S$35.6m in net proceeds for the enhancement of its two yards in Singapore, fleet expansion and working capital needs. NEUTRAL as it is fully valued in our view and given uncertainties prevailing in the market, we believe there could be opportunities to accumulate the stock lower post listing.
Valuation in comparison to peers in the oil and gas services sector is in the middle range at 11.1x FY13 PER based on its annualized 1HFY13 results. In the short term, we believe it is fully valued especially given the lack of visibility in terms of orders coming in. Long term, we see potential for growth given the continued demand in the O&G industry and the support of institutional funds with expertise in the South-East Asia region. With the enhancements to its yards, it can work on higher valued added projects which should be able to help grow both its top and bottom line. Most of its new shareholders entered at around 20-22 Scents/share, which we think is reasonable. It has two waterfront shipyard facilities in Singapore with capabilities to accommodate offshore vessels, jack-up rigs and drillships of up to around 7m draft at zero tide. It currently has 36 tugs and barges and around 40 other equipments comprising of cranes, trailers and prime movers. The group has a sizable number of international offshore oil contractors and service providers as its customers, including Transocean, Saipem and Northern Offshore making up 39%, 9% and 3% of its FY12 revenues, respectively. It has the backing of established funds – Credence Capital and Zana Asia Fund – as key investors, with both their total stakes at 22% postIPO.
Peer Comparison Code Name KIM HENG MENCAST SWIBER KREUZ DYNA-MAC IEV ASL EZRA Average
KHOM SP MCAST SP SWIB SP KRZ SP DMHL SP IEV SP ASL SP EZRA SP
Price (Local) 0.25 0.57 0.65 0.79 0.40 0.34 0.73 1.29
MktCap (S$ m) 177.5 167.4 396.8 440.0 392.4 64.3 306.0 1257.8 400.3
Actual PER (x) 10.3* 13.4 6.4 7.2 14.1 na 6.5 18.6 10.9
Y1 PER (x) 11.1 12.4 7.6 7.1 15.8 na 8.1 18.0 11.4
PBR (x) 2.3 1.8 0.7 1.7 2.2 2.2 0.7 1.0 1.6
ROE (%) 39.9 18.1 9.6 26.6 18.1 -4.3 12.1 5.4 15.7
Yield (%) na 1.7 na na 5.1 na 2.8 0.4 2.5
Source: * post-invitation and Y1 PER is based on annualized 1H13 earnings, Bloomberg, NRA Capital estimates
Income Statement
Joel Ng (+65) 6236-6886
[email protected] www.nracapital.com
(S$m, Year ending Jan) Revenue Cost of Sales Gross Profit Other income Distribution expenses Administrative expenses Other expenses Finance costs Profit before tax Tax credit/(expense) Net profit EPS (cents) Source: IPO Prospectus
FY10 80.6 (57.6) 23.0 0.4 (1.5) (16.5) (12.0) (3.4) (10.0) 0.8 (9.2) (1.3)
FY11 69.4 (37.5) 31.9 12.2 (1.2) (14.2) (5.0) (2.7) 20.9 (2.4) 18.5 2.6
FY12 86.7 (49.6) 37.2 2.2 (1.6) (13.1) (2.1) (1.5) 21.1 (3.8) 17.3 2.4
FY12 H1 50.9 (29.6) 21.4 1.0 (0.9) (6.6) (1.2) (0.8) 12.9 (2.3) 10.6 1.5
FY13 H1 41.0 (23.6) 17.4 0.3 (0.5) (7.4) 0.1 (0.5) 9.3 (1.3) 8.0 1.1
Kim Heng Offshore & Marine Company Background The group was founded in 1968 by Mr Tan Eng Hai (father of the group’s Executive Chairman and CEO and controlling shareholder Thomas Tan and SK Tan - Former executive director and COO) and several other partners. It began operating and owning lighters and tugs, providing towage and marine transportation services to customers in Singapore, Malaysia and Indonesia. Since then, it has grown into an integrated offshore and marine services provider whose customers includes major offshore drilling contractors and support service providers such as Transocean, Seadrill, Noble Corporation, Shelf Drilling and Hydro Marine services. Two main business segments. Its activities can be divided into 1) Offshore rig services and supply chain management and 2) Vessel sales and newbuilds. Revenues from Offshore rig services business segment accounted for around 8098%% of total revenues in the past 3 financial years with the rest contributed from Vessel sales and newbuilds. Offshore rig services and supply chain management. This segment comprises mainly Engineering, Procurement and Construction (EPC) projects for offshore O&G sector and provision of offshore support vessels and related logistics services. Its offshore rig services include construction and fabrication of sections of drilling rigs, installation of offshore production modules and system, as well as offshore platform and rig re-activation and maintenance projects. Its supply chain management mainly charters offshore supply vessels and related logistics services.
Source: IPO Prospectus
Vessel sales and newbuild. This segment comprises the purchase of vessels from vessel owners, which the group refurbishes and sells to customers. This also includes, although less frequently, newbuilds of mainly tugs and barges. Expansion plans for its two Singapore yards. It currently has two shipyards in Singapore, one at Pandan and the other at Penjru (figure 1 below). Its yards and fabrication workshops are equipped with crawler, gantry and overhead travelling cranes, forklifts, prime movers and CNC cutting, welding and drilling machines. It plans to use 50% of net proceeds to enhance these two yards, including plans to set up new fabrication and engineering workshops, construction of quayside jetty and other improvements.
page 2
Kim Heng Offshore & Marine Figure 1 Pandan Shipyard (left) and Penjuru Shipyard (right)
Source: IPO Prospectus
Use of Proceeds The group plans to use 50% of proceeds to enhance its yard facilities and expand its fleet, with the remaining split between expanding through acquisitions/investments and general working capital.
Source: IPO Prospectus
page 3
Kim Heng Offshore & Marine Substantial Shareholders Shareholder
% of Shares (Post IPO)
KH Group
42.1
Credence
17.6
SK Tan
0.4
Chen Biqing Tan Xing Kuan Tan Xing Yu
1.2 1.2 1.2
Double Happiness Global Limited
4.6
Jeffrey Teo Yarwood Engineering and Trading Others Public Total
Remarks 100% owned by Thomas Tan (Executive Chairman and CEO) Private equity investment fund managed by Credence Partners. Father of Chen Biqing, Tan Xing Kuan and Tan Xing Yu. Sibling of Thomas Tan. Retired from the group on 13 Jan 2014, previously COO and Executive Director of the group)
Owned by Zana Asia Fund, managed by Zana Capital
3.5 3.2 0.4 24.5 100.00
Source: IPO Prospectus
A 6 months moratorium will be in effect for KH Group and Credence, who hold 60% of total shares post-IPO. They have also agreed not to sell more than 50% of their stake in the subsequent 6 months. Other shareholders holding around 16% have also undertaken not to sell their stake for 6 months and an additional 6 months not to sell more than 50% of their stake.
New Shareholders These are the new investors that came onboard post restructuring: Total cash Shares consideration Adjustments (m) (S$m) (1 for 550) Credence 0.227 25.0 550.0 Zana Capital 0.060 7.2 550.0 Jeffrey Teo 0.045 5.0 550.0 Yarwood Engineering 0.042 5.0 550.0 Rosalind Lim 0.004 0.5 550.0 Ronald Lim 0.002 0.2 550.0 *Every share before IPO was subidivided into 550 shares
Shares after adjustments (m) 124.9 33.0 24.8 22.9 2.3 1.0
Final Price/Share (S$/sh) 0.20 0.22 0.20 0.22 0.22 0.22
Source: IPO Prospectus, NRA Capital
page 4
Kim Heng Offshore & Marine Financial Review Revenues dependent on projects coming in. As a result of lesser projects undertaken in 1H13 due to less drilling rigs and OSVs of its customers coming into Singapore, revenues decreased 19.6% yoy to S$41.1m. As a result, net profit decreased in line with the decrease in revenues, with net profit margins lower 1.1% pts as a result of increased admin expenses related to its listing exercise. (S$m, Year ending Jan) Revenue Cost of Sales Gross Profit Other income Distribution expenses Administrative expenses Other expenses Finance costs Profit before tax Tax credit/(expense) Net profit EPS (cents) Gross profit margin (%) Net profit margin (%)
FY10 80.6 (57.6) 23.0 0.4 (1.5) (16.5) (12.0) (3.4) (10.0) 0.8
FY11 69.4 (37.5) 31.9 12.2 (1.2) (14.2) (5.0) (2.7) 20.9 (2.4)
FY12 86.7 (49.6) 37.2 2.2 (1.6) (13.1) (2.1) (1.5) 21.1 (3.8)
FY12 H1 50.9 (29.6) 21.4 1.0 (0.9) (6.6) (1.2) (0.8) 12.9 (2.3)
FY13 H1 41.0 (23.6) 17.4 0.3 (0.5) (7.4) 0.1 (0.5) 9.3 (1.3)
(9.2) (1.3)
18.5 2.6
17.3 2.4
10.6 1.5
8.0 1.1
28.5% -11.4%
45.9% 26.7%
42.9% 19.9%
41.9% 20.7%
42.4% 19.6%
Source: IPO Prospectus, NRA Capital
page 5
Kim Heng Offshore & Marine
This publication is confidential and general in nature. It was prepared from data believed to be reliable, and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. No representation, express or implied, is made with respect to the accuracy, completeness or reliability of the information or opinions in this publication. Accordingly, neither we nor any of our affiliates nor persons related to us accept any liability whatsoever for any direct, indirect or consequential losses (including loss and profit) or damages that may arise from the use of information or opinions in this publication. Opinions expressed are subject to change without notice. NRA Capital Pte. Ltd. and its related companies, their associates, directors, connected parties and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add or dispose of or may materially interested in any such securities. NRA Capital Pte. Ltd. and its related companies may from time to time perform advisory, investment or other services for, or solicit such advisory, investment or other services from any entity mentioned in this report. The research professionals who were involved in the preparing of this material may participate in the solicitation of such business. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request. Co. Reg. No.: 199904258C 133 Cecil Street #04-02 Keck Seng Tower Singapore 069535 Tel: (65) 6236 6878 Fax: (65) 6222 0093
page 6