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Renewable energy contract wins sees SAC Capital call 'hold' for Kim Heng with TP of 10.16 cents

Bryan Wu
·2-min read

The company's offshore windfarm projects are concentrated in Taiwan and Vietnam, as well as across the Eastern Seaboard of the US.

SAC Capital analyst Peggy Mak has recommended “hold” for shares in Kim Heng with a target price (TP) of 10.16 cents, as the company’s offshore expertise has bolstered its windfarm contract wins.

According to the analyst, higher energy prices have rejuvenated offshore drilling activities, and the companies that provide offshore oil and gas support services. She believes that crude oil prices are likely to hover at current levels, which is still 70% above 2019’s average, and will “underpin” the oil and gas support services sector.

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Kim Heng’s utilisation and charter hire rates have also risen, with rig utilisation growing by 5.7% points year-on-year (y-o-y) to 71.4% in August, while time charter rates for anchor handling tug supply vessels (AHTS) increased 46.6% y-o-y in August to US$34,300 ($48,252.73) per day, according to Shipping Intelligence Network.

Mak notes that Kim Heng’s “core expertise” lies in offshore fabrication, maintenance and installation, and booked an ebitda of $4 million, or 65.1% higher, in 1HFY2022 ended June, with strong order flows at its two shipyards in Singapore.

Its fleet of 10 offshore support vessels are able to be deployed on oil and gas projects, as well as offshore windfarm projects — in which the company has been harnessing its offshore expertise to build a presence.

“Since 2019, it has broadened its scope of work to include integrated Horizontal Directional Drilling (HDD) for cable laying, offshore substation and wind turbine assembly work. The contracts secured thus far are concentrated in Taiwan and Vietnam,” writes the analyst.

“It has entered into a one-year non-binding memorandum of understanding (MOU) with Crowley Wind Services Inc to cooperate in offshore windfarm cable laying installation projects across the East Coast of the US,” she adds.

Although the renewable segment contributed $17.9 million, or 28.3% of Kim Heng’s FY2021 revenue, Mak believes these contracts are “lumpy” in terms of execution and milestone completions.

She projects Kim Heng to turn around from FY2022 on the back of the improving operating landscape, with its 1HFY2022 net profit also benefiting from a $6.1 million gain in asset divestments.

Meanwhile, the analyst notes that a block of 125 million shares changed hands in June, when Credence Capital Fund II (Cayman) Ltd divested its entire holdings to Hildrics Capital Private Limited at 10.5 cents per share. Taking this into account, as well as the analyst’s discounted cash flow (DCF) valuation, she has derived a TP of 10.16 cents for Kim Heng.

As at 11.29, shares in Kim Heng were trading 0.2 cents or 2.33% up at 8.8 cents.

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