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Is Hoe Leong The Next Oil & Gas Gem?
Corporate Digest | 11 December 2009
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By: Clement Kan
Articles (1) Profile

heo_leong_ceoA leading supplier of spare parts for heavy equipment and industrial machinery, Hoe Leong Corporation Ltd (Hoe Leong) was trapped below the $0.15 barrier on thin trading volume for a large part of the year. In October, prominent investor Tan Kim Seng acquired a 9.46% shareholding in Hoe Leong, jolting the Mainboard company’s moribund shares back to life.

Apart from Hoe Leong, Tan also owns stakes in other SGX-listed companies, including C2O Holdings and Ezion Holdings. “We intend to appoint him [Tan] as our advisor and tap on his expertise as well as extensive network of contacts in the oil & gas industry,” said James Kuah Geok Lin, Chairman and CEO of Hoe Leong, during a recent interview with Shares Investment (Singapore).

Charting New Route
Prior to Tan’s emergence as a strategic investor in the company, Hoe Leong has already been taking small albeit decisive strides in penetrating the buoyant oil & gas sector. Having established its offshore vessel chartering operations in 2008, the company is looking to further grow and develop this particular nascent business arm.

Just last month, Hoe Leong inked a memorandum of agreement to acquire an offshore supply vessel from Jaya Shipbuilding and Engineering Pte Ltd for US$18 million, through Supreme Voyager Pte Ltd (SVPL), a 70/30 joint venture (JV) company with Supreme Oilfield Services Pte Ltd (SOS).

More importantly, SVPL has a contract at hand to employ this vessel in an offshore drilling project for a period of 3 years, with option for two further extensions of 1 year each. “We are adopting a conservative approach whereby we would only buy the vessels after the charter contracts are secured,” commented Kuah. “There is really no need to rush [into vessel acquisition] at the moment as prices are still inexpensive,” he added.

In a separate announcement pertaining to the charter rates for the newly acquired vessel, the company highlighted that the average return on equity and return on assets over the 3-year charter period are approximately 43% and 15% respectively. “We are targeting a payback period of 4 to 5 years on average,” Kuah remarked.

Firm Partnership
As a matter of fact, the aforesaid deal would mark Hoe Leong’s second collaboration with SOS. Helmed by Kuah’s long-time golf buddy and industry veteran John Kwek, SOS has been in existence for more than 25 years, primarily engaging in the chartering of vessels and supply of equipment to companies in the oil & gas industry.

Their maiden vessel acquisition – a US$8.5 million floating mud barge – was completed in March 2008, through another JV entity Supreme Energy Pte Ltd, which Hoe Leong holds a 60% equity interest.

Even though the limelight in recent months has very much been on Hoe Leong’s oil & gas endeavours, plans remain on the cards to further expand the company’s equipment parts business into new markets such as Africa. Boasting an enviable customer base of more than 1,200, Hoe Leong currently carries about 20,000 types of equipment parts in 25 categories for over 100 brands of products.

Despite registering a 17% drop in revenue to $28.9 million for the half-year ended 30 June 2009, Hoe Leong managed to chalk up net earnings of $0.8 million, a commendable 77.3% jump from the previous corresponding period.

This was achieved on the back of an improvement in gross profit margin from 1H08’s 27% to 31%, mainly contributed by the company’s offshore vessel chartering business segment.

Meanwhile, Hoe Leong is aiming to add two more vessels to its stable in 2010. The company is also hoping to acquire one to two companies that complement its offshore vessel chartering operations and is in talks with a few interested parties, one of which is a foreign oil transportation company with a fleet size of 11 vessels. Notably, Kuah does not rule out the possibility of a future merger with partner SOS.

Nonetheless, judging from its balance sheet, Hoe Leong would definitely need to carry out fund raising exercises in order to successfully fund these capital-intensive initiatives. But all in all, Hoe Leong appears to be a promising oil and gas play in the making.

Hoe Leong Corp  -- -- --   
Business: Co is engaged in the trading & distribution of spare parts for heavy eqmt and industrial machinery, design & manufacturing and barge/vessel chartering. [FY18 Turnover] Design & mfr (60.1%), trdg & distribution (23.6%), vessel chartering (16.3%).

Insight: May-19, 1Q19 revenue rose 11.2% due to increased r... Read More

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