Kim Heng

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Profit warning.

Kim Heng's Q3 profit plummets 62%
Fall in revenue and gross profit margin; group expects final quarter to fare better than Q3

7 Nov5:50 AM

LOWER revenue and poorer gross margin combined to drag down Kim Heng Offshore & Marine Holdings' third-quarter earnings.

The company, which was listed on Catalist in January this year, on Thursday posted a sharp 62 per cent fall in net profit to S$1.15 million for the
Kim Heng bought some assets of Swiber at fire sale prices:

With this transaction Kim Heng's cash position should be reduced to about $10m, and its debt raised to about $25m.

Is Kim Heng smart, or will this accelerate its cash burn rate?

With lower shale production costs, will demand for offshore and marine services recover to previous levels?
If we accept contrarian notions, buying those assets now would make sense.
Not vested.
You can count on the greed of man for the next recession to happen.
Selling property for 18.5m vs mkt value 22m(book value 25m) due to only selected buyers allowed.

I wonder whether ppty appraisers take these conditions into considerations.

Still holding on to my belief(based on previous experience) that there may be a need to apply some discount to the value in "ppty/plant/equipment" in certain situations.

Kim Heng Offshore & Marine to incur impairment loss of $6.5 mil in proposed sale of Penjuru Road property
Stanislaus Jude Chan 3/01/2020, 5:47pm

.....Based on a valuation by Collier International Consultancy and Valuation (Singapore) as at end-December 2019, the property has a market value of $22.0 million.

However, Kim Heng says in a filing to SGX that the sale price was the best price offered for the property.The group says this is because the owner of the building, Jurong Town Corporation (JTC), only allowed the property to be sold to a company engaged in a business which involved the use of the waterfront, thus narrowing the pool of potential buyers......
I was thinking Kim Heng would raise money thru placement or right issues, but it chose to sell assets instead.

During the downturn, the company has taken the opportunity to buy distress assets, mainly Tug boats and supply vessels, at hugely discounted price. These vessels are now gainfully chartered out, and I suppose at reasonable rates. With improving offshore chartering rates, it is likely that the market value for these vessels is higher than its carrying value in the balance sheet.

So by selling the property, instead of selling some vessels acquired last few years, and possibly at a profit, I reckon that the company feels that the vessels can bring in more economic benefits to the company.

Unlike some O&G companies that went belly up during the last few years due to the oil crisis, Kim Heng has managed to survive. Of course, its cash level is also depleting. So far, it has tap on bank credit, and now selling property to meet its capital needs, instead of issuing shares thru placement and/or right issues. What’s the logic? Probable has to attend the EGM to find out more.
Finally, this company has attracted the attention of investors, based on the significant surge in price today!

The company has a long history dated back to 1968. In its more than 50 years of history, it has weathered many storms and still survive till today.

As a company primarily in supporting the offshore O&G industry, the last few years were very harsh for the company, but it managed to handle the storms pretty well. In fact, for those who follows the company, it has been acquiring distress assets at cheap price in the last few years. These assets, mainly tug boats and OSV vessels, were put to good use now.

And the most exciting part is this: last year, they pivoted away to the offshore windfarm business, and within a short period, this segment has become the largest business segment for the company in FY2020!

Renewable energy is the next big thing, and it is impressive that the company manage to catch the wind early. More positives can be expected from this segment in years to come. The company has also changed its name to reflects the new business and it is a showing of how positive they view the renewable energy business contribution to the group in the future.
An interesting Edge article in May 2021, depicting the promising offshore windfarm sector, and how some previous O&M companies (Kim Heng, Sembcorp Marine, Keppel, Penguin, Macro Polo Marine etc) are quick to jump into this booming sector. As Thomas Tan of Kim Heng puts it, the barriers to entry is getting higher and margins for wind offshore projects have been “decent”.

Let’s also not forget that oil price is at a 2 years high, transacting to more jobs, and more importantly better margin jobs in the O&M sector. The companies mentioned above are not only reaping the benefits in the new offshore windfarm sector, they are presumably making good gains from the existing markets/sector that they have been operating in for years.

It’s no surprise that the share price of these companies are moving up since late 2020.
Certainly, this company is getting the attention of the investment community, judging by the shares price movement over the last few months...Yes, the company is riding a new wave, and this wave seems strong and high

I asked myself these questions after reading this latest announcement from KH:

As of end June 2021, KH cash and cash equivalents was S$3.6 million. While bank overdrafts and loans and borrowings totalled S$38.9 million. Looking at these numbers, will any bank wants to extend a further loan to the company? Yet, this is exactly what UOB did, extending a S$7.5 million green loan to KH to finance the purchase of a S$10 million 1250 tonnes crawler crane. How did KH convinced UOB to support the company, despite a rather leverage balance sheet?

The balance purchase price of S$2.5 million were funded by the group’s internal resources. With S$3.6 million cash and cash equivalent remaining as of June, did the company cash generation abilities improved significantly over the last few months? So much so that they are comfortable to cough out S$2.5 million for the purchase?

KH NAV as of June 2021 was S$57 million. This 1250 tonnes crawler crane itself cost S$10 million. This could be the single largest asset they ever bought. Why do they need to buy such an expensive equipment, taking on more loans and using valuable limited internal resources? Is there a big plan for this equipment? Is this a game changer for them?

After having some success in securing windfarm projects in Taiwan, they managed to penetrate into Vietnam windfarm sector now. This is, to me, the BIG news. While the contract price is not big, at US$7.2 million over 30 months, their ability to get into a new market and a chance to establish themselves is significant. What is even more important is that they managed to expand their technical services, from mainly installing transmission of cables for windfarms in Taiwan, to providing turnkey windfarm construction and installation services. With these new capabilities and capacities, will it garner them more projects in Taiwan and Vietnam, or other countries which they are eyeing?

All these, plus the red hot O&G industry, what is the prospect of KH going to be like?

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