Beng Kuang Marine: A Comprehensive Analysis
Broker: Maybank Research Pte Ltd
Date: February 25, 2025
Company Overview
Beng Kuang Marine (BKM) engages in providing corrosion prevention services related to the repair of ships, tankers, and other ocean-going vessels. The company has witnessed substantial growth in its revenue streams, driven mainly by strong demand for its asset-integrity solutions and services for Floating Production Storage and Offloading (FPSO) units and Floating Storage and Offloading (FSO) units.
Financial Performance
BKM’s financial results for the fiscal year 2023 show a remarkable surge in performance. The company’s revenue soared by 41.3% year-on-year (YoY) to SGD 111.9 million, while its Profit After Tax and Minority Interest (PATMI) skyrocketed by an impressive 237% to SGD 11.5 million. This growth was largely propelled by robust demand for integrity solutions and services for FPSOs and FSOs, along with a one-off gain of SGD 5.5 million from a partial land sale.
Revenue Breakdown
In detail, the Infrastructure Engineering (IE) segment reported a staggering 60.3% YoY increase in revenue, reaching SGD 91.4 million from SGD 57 million the previous year, constituting 81.7% of the total revenue. Conversely, the Corrosion Prevention (CP) segment experienced a minor decline, with revenue dipping 7.4% to SGD 20.4 million.
Future Outlook and Adjustments
While the outlook remains positive, growth is anticipated to slow due to macroeconomic factors affecting the market. As a result, the analyst has revised the PATMI forecasts for FY25 and FY26 downwards by 39% and 41%, respectively. The target price (TP) has been adjusted to SGD 0.26, based on a lowered price-to-earnings (P/E) ratio of 8.5x for FY25E, compared to the previous estimate of 9x.
Growth Drivers
The strong growth trajectory of ASOM (Asian Sealand Offshore & Marine), a 51%-owned private subsidiary, is expected to continue driving revenue, albeit at a more tempered pace. The management has declared a dividend of SGD 0.6 cents per share, slightly below expectations, but still viewed positively as a means to conserve cash for potential mergers and acquisitions (M&As).
Market Position and Shareholder Value
Beng Kuang Marine is recognized as a key beneficiary of the robust FPSO market, with a projected CAGR of 51% for PATMI from FY23 to FY27. The demand for maintenance, repairs, and extension of life services for FPSOs continues to surge, enhancing the company’s market position. The analyst believes that BKM is significantly undervalued at just 4.5x FY24E P/E, with potential asset sales, including the Batam shipyard, that could yield an additional SGD 13.8 million.
Risks and Challenges
Despite the positive outlook, several risks could hinder growth. These include potential recession impacts, falling oil prices that could slow oil and gas activity, rising labor costs, and declining FPSO activities which could adversely affect profitability.
Recommendation
The author maintains a “BUY” recommendation for Beng Kuang Marine, highlighting an anticipated price increase of 25% from the current level, with the target price set at SGD 0.26. The firm remains optimistic about the FPSO market and the performance of ASOM, while closely monitoring cost control and core earnings performance moving forward. The key risks to this recommendation include recession, lower oil prices, and rising labor costs.
Conclusion
Beng Kuang Marine presents a compelling investment opportunity against the backdrop of a booming FPSO market and increasing demand for related services. With adjusted forecasts and a strategic focus on growth, BKM appears well-positioned for future success, despite the inherent risks within the oil and gas sector.
