Riding on the Oil & Gas Recovery

Offshore and marine player Kim Heng Limited’s revenue for the first half to end-June 2021 jumped 64 per cent to S$28.9 million, from S$17.7million a year earlier, as all business segments showed gains.

O&G activities are recovering. Its chartering segment has significantly improved, and its marine offshore segment has also made strong progress, thanks to a pick-up in offshore renewables activity in Northeast Asia and restart in O&G activities.

EBITDA has remained positive at S$1.8m, but operating cash flow turned negative due to higher working capital. Although the company incurred a net loss of S$3.6million in 1H21, its trajectory appears positive.

Here are six questions we put to the company:

Q1. Kim Heng appears to be showing a good turnaround this year. Is it realistic to expect this trend to continue and strengthen for the rest of the current financial year? Why?

A: The outlook for the OWF (“Offshore Wind Farm”) sector over the next decade is very bright. We are into the energy transition growth cycle which creates many opportunities for KH as we are well positioned with strong competencies leveraged from past offshore environment engineering and construction.

Q2. Your offshore renewables in Taiwan seems to be taking off well. What are the prospects for the coming year?

A: Our current prospect of cable works to be completed around 2022. And hopefully to win new cable projects that we are chasing into 2022 to 2024 new prospects: Peng Hu, Zhong Neng and Formosa 3.

Q3. Given that Kim Heng's two yards are located in Singapore, and given various travel restrictions, how is the company constructing and installing the Taiwanese wind farms?

A: Fortunately, our construction team and engineers were granted the permits and are making good progress to complete and deliver the projects as we were in Taiwan just before the pandemic outbreak.

Q4. What are your expectations in terms of timeline for Kim Heng to derive more than 50% of its income from the renewable energy segment?

A: The management remains focused on the energy transition and continues to grow both revenue and margin income in the renewable segment to hopefully achieve above 50% soon. We are making good progress and on track to deliver this target to achieve this contribution of 50% from renewables to revenue.

Q5. Several of your vessels/assets were bought from distressed sales. What is their current market valuation and are you recognising any revaluation reserve?

A: All our vessels are carried at cost of acquisition in our books. With recognised upward revaluation reserves at potentially above 20% to 50% on selected assets, there will be higher depreciation expenses. Currently, the management has no immediate plans for any revaluation reserve on this class of assets.

Q6. When or which financial year do you think Kim Heng can generate S$5m net profit?

A: This will be achieved when we are able to achieve higher levels of utilisation and charter rates coupled with winning more contracts from the renewables segment and with the recovery of drilling and production activities in the O&G sector.

Click here for more quick facts on Kim Heng Limited.

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