Date of Report
October 7, 2024

Broker Name
Lim & Tan Securities Pte Ltd

Business Transformation and Strategic Shift

Beng Kuang Marine underwent a significant transformation starting in 2021. The company decided to exit its ship chartering business after a series of setbacks, including the detention of one of its live cattle carriers in Indonesian waters and incurring heavy charges for towing a damaged vessel during the pandemic. CEO Yong Jiunn Run recognized the challenges in this sector, citing high depreciation, maintenance, crewing, and insurance costs, and opted to wind down the business.

Additionally, the company exited the hardware distribution and bottled water supply businesses. These were seen as commoditized markets with high inventory risks and price competition. The strategic review in 2021 led Beng Kuang to adopt an asset-light model, streamlining operations to focus on its core areas of infrastructure engineering and corrosion prevention.

Financial Resilience and Debt Reduction

As part of the transformation, Beng Kuang divested its Singapore shipyard and initiated a cost optimization exercise aimed at improving financial resilience. The company’s debt, which stood at S$60 million in 2021, was significantly reduced. The cost-cutting measures helped Beng Kuang turn profitable and strengthened its cash position, enabling the company to better navigate potential future challenges.

Focus on FPSO and FSO Vessel Maintenance

Beng Kuang has shifted its focus to providing services for Floating Production Storage and Offloading (FPSO) and Floating Storage and Offloading (FSO) vessels. These vessels, which are crucial for offshore oil production, require ongoing maintenance and certification to ensure safety and compliance. Beng Kuang has developed expertise in this field, covering up to 80% of the maintenance services required onboard FPSOs.

The company’s leadership position in corrosion prevention, along with its strong technical certifications, gives it a competitive edge in this market. Maintenance of FPSO and FSO vessels is essential regardless of oil price fluctuations, providing a steady revenue stream for the company.

Financial Performance

Beng Kuang reported a significant turnaround in FY2023, with earnings of S$3.4 million after reporting losses of S$13.4 million in FY2021 and S$21.8 million in FY2022. Revenue for FY2023 was up 33.9% to S$79.2 million from S$59.1 million in the previous year.

In the first half of 2024, Beng Kuang continued its upward trajectory with revenue increasing by 88.1% to S$59.9 million compared to S$31.9 million in the first half of 2023. Net earnings for H1 2024 stood at S$8.5 million, a significant improvement from a loss of S$854,000 in H1 2023.

Global Expansion Plans

Beng Kuang is also expanding its international presence, particularly in South America. The company has established a foothold in Guyana and is preparing to enter the market in Suriname, where offshore oil reserves are being developed. This expansion into new markets aligns with its focus on providing specialized services for the offshore oil and gas industry.

Market Position and Valuation

As of October 2024, Beng Kuang’s market capitalization stands at S$53.8 million. The company trades at 8.4x forward PE and 3x PB, with a consensus target price of S$0.29, offering a potential upside of 7.4% from the current share price.

Conclusion

Beng Kuang Marine’s shift to an asset-light model and focus on specialized services for FPSO and FSO vessels have led to a successful financial turnaround. With a strengthened balance sheet, improving profitability, and strategic global expansion, the company is well-positioned for continued growth in the offshore oil and gas sector.