Kim Heng Offshore & Marine

Kim Heng Offshore & Marine: Maybank-KE cuts rating for Kim Heng to SELL with TP of $0.146 (from $0.305), after the group posted dismal 3Q14 results weighed by delays in rig arrivals, a trend persisting for over six months. Management concurred that clients have pushed back E&P spending amidst the deteriorating macro environment and falling oil prices. O&G industry giant Baker Hughes has warned that drilling contractors would seriously consider withdrawing drilling rigs should US crude fall below US$75/barrel, which is only 6% shy of the current spot of US$79. Management has lowered its expectation of completing 72-75 rig contracts in FY14E to 68, while the average revenue per contract is expected to shrink from recognition of lower margin activities in 9M14. Kim Heng’s order book contracted from $86m in 1H14 to $80m, of which $50m is expected to be recognized in FY15. Lease renewal for its shipyard at 48 Penjuru Road has been approved up to 2036, although 9 Pandan Crescent (expiring 21 Dec 2015) is still pending. Notably, M&A plans have been delayed until the current down cycle bottoms. Management intimated that company may pay dividends of 0.5¢/share for FY14 (2.6% yield). Subsequently, house cuts FY14E/FY15E revenue and earnings by 28%/32% and 54%/46%, respectively, on reduced service contracts, ASPs and lower gross margin outlook.