Kim Heng Offshore

Kim Heng Offshore: Maybank-KE initiated on the counter, with a Buy and $0.305 TP. 1H14 earnings fell 68% YoY because of the late arrival of drilling rigs and OSVs; as a result, revenue bookings will be pushed to 2H. Timing differences aside, business fundamentals remain robust as rig deliveries are expected to rise through 2015, with rig utilisation holding steady at 80%. This bodes well for Kim Heng as rig repair & maintenance business contributed 79% of FY13 sales. Kim Heng is currently in talks to acquire a subsea equipment servicing and engineering company. Although details are scant, it shared in its IPO prospectus that it would be prepared to invest up to SGD7m in such a project. We believe this could add $1-2m to Kim Heng’s earnings, roughly forms 11 -10% of our current FY14E-15E earnings forecasts. Yard renewal concerns may be overdone, as the company is confident that JTC will approve the lease extensions, based on the detailed investment and development plans it submitted in mid-August.