Kreuz Holdings Limited

Transcription

1 Des IPO Watch 23 rd July 2010 Yeak Chee Keong, CFA com Reasonably Attractive Issue IPO Statistics Offering Price S$0.27 Listing Status SGX-ST Catalist Board Pre-IPO Share Base 427.0mil Closing Date 27 July 2010, 1200hrs IPO Issue 75.5mil (Placement) Trading Date 29 July 2010, 0900hrs 4.5mil (Public) ( ready basis) Post-IPO Share Base 507.0mil Pre-IPO NTA cents FY09 EPS (Pre-IPO) 3.90 cents Post-IPO NTA cents FY09 PE (Pre-IPO) 6.92x Price/ Post-IPO NTA 1.32x FY09 EPS (Post-IPO) 3.28 cents FY09 PE (Post-IPO) 8.23x FYE 31 Dec Source: IPO Prospectus Investment Summary Kreuz Holdings Limited ( KHL ), a subsea solutions provider for the oil and gas industry is seeking a listing on the Catalist Board of SGX. It is offering 80mil new shares at S$0.27 per share. It intends to use S$12.0mil of its S$20mil net proceeds to acquire new assets such as Remotely Operated Vehicles (ROVs) and diving systems. We value KHL at 7.0x P/E translating into a fair value of S$0.31. This represents an upside potential of 15% which is reasonably attractive in our opinion. We recommend investors to Subscribe for the issue. Company Background Kreuz Holdings Limited ( KHL ) was first incorporated as a private limited company on 18 Dec It was converted to a public limited company in conjunction with its listing plan on 19 July The company is principally involved in the provision of subsea services involving activities which support new offshore installation and construction projects, as well as, Inspection, Repair and Maintenance ( IRM ) of existing offshore production and pipeline facilities. Major Customers Its direct customers are Swiber Group and Allseas Marine Contractors S.A. which accounted for all of its revenue for both FP08 and FY09. The end customers however are generally major O&G companies such as: British Gas India Pvt Ltd Brunei Shell Petroleum Co Sdn Bhd Reliance Industries Limited Conoco Phillips, Inc. Alam Maritime Resources Berhad Petroliam Nasional Berhad Use of Proceeds Use of gross Proceeds Amt in aggregate (S$ 000) Est. amt allocated for each of gross proceeds to be raised from new shares issue (cents) Acquisition of new assets including ROVs & 12, Diving Systems General working capital purposes 7, Invitation expenses Listing fees Professional fees 1, Underwriting, commission, placement commission & brokerage Miscellaneous Total 21, Source: IPO Prospectus page 1

2 KHL intends to use up to $12mil of the proceeds to acquire new assets including ROVs and Diving systems. This ROVS would enhance its capabilities to perform complex remote intervention, inspection and survey services at greater depth. New diving systems would allow it to take on more projects. Competitive Strengths Strong support from Swiber Group. KHL originated from within Swiber Group and with Swiber being its major shareholder with 63.2% share after listing, it has naturally garnered strong support from Swiber. Other than non-competition undertaking by Swiber, it has also granted several first right of refusal to KHL in terms of provision of subsea services and charter/lease of vessels, equipments and systems. Swiber also provides it with project support services, corporate services and use of its trademark in marketing its services. Relatively new diving systems and vessels. Its diving systems are less than 2 years while its work accommodation/dive support vessels are under 3 years of age. Having equipment that meet stringent requirements positions it to secure projects from major O&G customers. Key Management Mr Kurush Phiroze Contractor, ED & CEO. Mr Contractor is in charge of the establishment, organisation and strategic growth of the Group. He was appointed to the Board on 18 December He has experience in the industry holding positions such as saturation diver, project manager, operation manager, general manager, offshore installation manager, vice president and senior director. The companies he had worked for include Rockwater Limited, Peerless Shipping & Oilfild Services Ltd, Bumi Care Offshore Production Sdn. Bhd., and Global Industries Ltd. Mr Contractor graduated from Bombay University, India with a Bachelor of Science degree majoring in Chemistry, Physics and Mathematics in He is a qualified commercial deep sea diver and has received technical qualifications for saturation diving, NDT, diving medic and diving supervisor. Mr Sheldon Richard Hutton, VP Offshore Subsea Installation. Mr Hutton has been in the commercial diving business since Between 1980 and 2008, he worked as diver, welder diver, lead diver, supervisor and superintendent in various projects carried out by companies operating in subsea business, such as Oceaneering International Inc., Hydrospace Oceaneering International, Coflexip Stena Offshore Inc, Rockwater Limited and Global Industries Ltd. Mr Hutton joined KHL in June 2008 and is responsible for its offshore subsea installation projects. Mr Cyrus Phiroze Cama, VP Offshore Subsea Operations. Mr Cama has been in the subsea construction industry since He worked as diver, project coordinator and project manager for various subsea projects in India, Middle East, Southeast Asia and Europe carried out by companies such as Rockwater Limited, Coflexip Stena Offshore Inc, Global Industries Limited, Stolt Comex Seaway and Subtec Middle East Ltd. Mr Cama joined KHL in June 2008 and is responsible for offshore subsea operations. Key Risks Reliant on Swiber Group. Swiber contributed 47.4% and 74.1% of KHL s revenue in FY08 and FY09 respectively. Swiber will also own 63.2% of KHL after listing. In addition, Swiber provides corporate services to KHL for monthly fee of US$5,000 and project support services. The continuing support and alignment of interests between Swiber and KHL is therefore important. Limited track record. KHL has a short history of operation of less than 2 years and its short history of results may not be indicative of future performance. Subsea service industry cyclical. The industry is cyclical in nature and demand for its services may fluctuate. Factors affect such demand may be related to supply and demand issues for the O&G industry, oil prices and capex plans of O&G companies. page 2

3 Forex exposure. KHL reports in US$ but incurs expenses in US$, S$ and INR. In the event that there are adverse movement in the currencies, KHL may suffer forex losses. This would be especially so for contracts which are longer term in nature. KHL does not have a hedging policy currently. In FY09, 78% of its expenses were incurred in US$ and 19% in S$. The depreciation of the US$ resulted in forex loss of US$269,000. Outlook & Prospects Increase in capex of O&G companies. With oil prices stabilising at around US$70-80 per barrel, many oil & gas companies who have put off capex previously has started to resume their spending. Replacement of old offshore installations in Southeast Asia. Most of the offshore installations in Southeast Asia were built in the 1970s and due to aging, will require intensive Inspection, Repair and Maintenance (IRM) work. There is a high demand for such work in Brunei where oil fields are relatively matured. KHL is also targeting countries like India and the Asia Pacific to ensure its assets can be fully utillised throughout the year as these 2 places have different working seasons. Orderbook. KHL has an outstanding order book of US$133.2mil as at 16 June The orderbook comprises US$61.0mil from the Swiber Group and US$72.2mil from third party customers. These contracts are expected to be completed over the next 5-60 months. In addition there is an option exercisable by a customer to extend an ongoing 5-year IRM contract for a maximum of 2 years after the completion of the current contract. This contract is worth approximately US$35.0mil. Financial Highlights & Forecasts KHL has been operational for less than 2 years having commenced its operations in July Its FY08 result was only for 6 mths of performance while FY09 shows its first full year of operation. Margins were quite remarkable with gross and net margins of 31.0% and 21.1% for FY09. It also generated positive operating cashflow of US$2.8mil in the same year. In terms of balance sheet strength, KHL is currently debt-free with healthy current ratio of 1.6x. Although it was not disclosed in the prospectus, we suspect that its 5-year IRM contract makes up a substantial portion of its outstanding orderbook given that a 2-year extension thereafter is valued at US$35.0mil. This IRM contract was signed in Dec Other than this IRM contract, the term for most of its other contracts should be less than 12 months. We forecast that at least 30% of the outstanding orderbook should be recognised in the remaining months of FY10. INCOME STATEMENT (US$ mil) FY08 FY09 FY10F FY11F Revenue Cost of Sales (6.6) (38.9) (45.6) (53.5) Gross Profit SG&A Expenses (0.9) (3.3) (3.4) (3.9) Other Op. Expenses (0.0) (0.3) (0.3) (0.4) EBT Taxation (0.5) (1.9) (3.3) (3.6) Net Income Attributable to Equity Holders of Company Minority Interest Source: IPO Prospectus, NRA estimates page 3

4 Valuation & Recommendation The listed marine & offshore companies in Singapore are trading at an average current P/E of 9.2x, with Swiber Holdings Ltd trading at 11.8x. Comparatively, based on our FY10F EPS forecast, KHL s P/E based on its listing price of S$0.27 is 6.2x. Given the smaller market cap of KHL and the short operating history, we prefer to be conservative and apply a discount to its valuation. We value KHL at 7.0x P/E translating into a fair value of S$0.31. This represents an upside potential of 15% which is reasonably attractive in our opinion. We recommend investors to Subscribe for the issue. Marine & Offshore Services Companies S$ mil S$ P/E (x) P/S P/B ROE GPM NPM D/E Net D/E Mkt Cap Price Hist Current Fwd (x) (x) % % % % % PEC Ltd Baker Technology Ltd Beng Kuang Marine Ltd BH Global Marine Ltd CH Offshore Ltd China Oilfield Tech Services Grp Ltd Ezion Holdings Ltd Ezra Holdings Ltd 1, GRP Ltd Heatec Jietong Holdings Ltd KS Energy Services Ltd Leeden Ltd Technics Oil & Gas Ltd KTL Global Ltd Mermaid Maritime PCL MTQ Corp Ltd Penguin International Ltd R H Energy Ltd Swiber Holdings Ltd Swissco International Ltd Tiong Woon Corp Holding Ltd Tat Hong Holdings Ltd Sinwa Ltd Marco Polo Marine Ltd Mercator Lines Singapore Ltd Average Source: Bloomberg page 4

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6 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.: C 36 Robinson Road #12-05/06 City House Singapore Tel: (65) Fax: (65) page 6