Kim Heng

Kim Heng: 4Q14 turned in a loss of $1m (4Q13: $6m), bringing FY14 earnings to $5.6m (-67%), starkly lower than street’s full year estimates of $18.5m, weighed by the falling oil price as upstream majors cut back spending in the downstream sectors.

For the quarter, revenue dropped 21% y/y to $20.5m, as lower demand for rig maintenance ensued the decline in Kim Heng’s core offshore rig services and supply chain management segment (-36%), but partially mitigated by the sale of a barge (~$3.9m).

Gross margin shed 14 ppts to 30% from a lower contribution of the more profitable marine offshore support services and chartering and towage services.

Meanwhile, bottom line was dragged by a $3.3m provision for doubtful debts and an absence of sale of inventory made in 4Q13, partially mitigated by disposal ($0.7m) and FX ($0.5m) gains.

Excluding the one-offs, Kim Heng’s FY14 earnings came spot on to Maybank-KE’s estimates, the house with the lowest TP ($0.146) on the street.

Despite lower earnings, management maintained its first and final DPS of 0.5¢, amounting to a payout ratio of 62%.

We see the attempt as an unhealthy disbursement of cash by majority stakeholders, and are not in favour of the move.

In light of the ongoing squeeze on downstream service providers of the O&G industry, as well as Kim Heng’s intention to expand its services through M&A, we opine that the group may be better off storing cash in its pile at this stage.

At $0.121, Kim Heng is valued at 7.7x forward P/E and 0.88x P/B. We expect the street to cut its earnings estimates for FY15/16 in the near-term, underpinned by lower forecasts on revenue numbers, which should translate to reduced profitability and earnings.