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ES Group Reaches New Milestone With Maiden Chartering Deals
Corporate Digest | 04 November 2010
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By: Clement Kan
Articles (1) Profile

Armed with over 30 years of operating history, ES Group (Holdings) Limited (“ES Group” or the “Company”, and together with its subsidiaries, the “Group”) attained yet another new milestone earlier in August this year, barely one month after its Catalist debut.

In line with business strategies and future plans stated on the Company’s Offer Document dated 1 July 2010, ES Group, through its wholly owned subsidiary ES Shipping Pte. Ltd., inked two bareboat charter agreements worth a total of S$21.8 million over 3 – 7 years, signaling its strategic entry into the vessel owning and chartering business. Additionally, ES Group believes that this move also provides a relatively stable stream of recurring revenue.

Diversifying Revenue Streams
According to the management of ES Group, construction of the two 3,400 dead weight tonnes bunkering vessels has already commenced at the shipyard in Thailand owned by its 50% owned subsidiary ES Offshore and Marine Engineering (Thailand) Co., Ltd. (“ES Thailand”), with delivery expected in FY2012.

Christopher Low, Chief Executive Officer of ES Group, is particularly sanguine about this new business foray. “The bunkering sector in Singapore, a global shipping hub, is growing steadily and the outlook for charter rates is promising,” he commented.

Low firmly believes that the vessel chartering business will be able to complement the Company’s core shipbuilding and repair operations.

Headquartered in Singapore, ES Group is primarily involved in new building, conversion and repair of an extensive range of ocean-going vessels, such as tugs, barges, rigs offshore support vessels, oil tankers and cargo ships.

ES Group’s customers boast of prominent local shipyard operators, including Sembawang Shipyard, Keppel FELS and Singapore Technologies Marine. Besides having site offices at the premises of these reputable shipyard customers, ES Group operates out of its workshop and repair facilities at 10 Kwong Min Road.

Establishing Overseas Presence
Through ES Thailand, ES Group also owns a 70,000 square metre shipyard with fabrication grounds in the Land of Smiles, providing new building and conversion services. ES Group is one of the largest overseas shipbuilders in that country and enjoys distinct benefits of operating there.

Due to its advantages in terms of geographical location and skilled labour, Thailand possesses promising potential in the vessel building and repair industry. More importantly, this industry has shown continued growth in recent years due to heightened global demand for container vessels. All these certainly bode well for ES Group, which endeavours to leverage on its facilities in Thailand and rake in more contracts.

From FY2007 to FY2009, ES Group’s turnover and net profit grew at a compounded annual growth rate of 13.7% and 22.5% respectively.

For the half-year ended 30 June 2010 (1H2010), ES Group reported S$1.1 million net profit attributable to shareholders on a lower turnover of S$18.0 million as the Group commenced on redirecting resources to strengthen its vessel owning and chartering focus.

In 1H2009, the Group had reported net profit of S$3.2 million on revenue of S$30.0 million.

This year, turnover decreased due to reduced contribution from ES Thailand as the Group focused its resources to build its own vessels for chartering.

In line with lower turnover, 1H2010 gross profit also decreased by 49.6% to S$4.3 million from S$8.5 million in 1H2009 and gross profit margin declined to 23.9% in 1H2010 from 28.5% in 1H2009.

Enhancing Gross Margins
In a bid to boost its gross profit margin, ES Group intends to expand the existing scope of its business by developing its engineering capabilities. This will enable the company to undertake engineering, procurement and construction (“EPC”) projects, which are highly valued due to their nature, scale and complexity.

ES Group has recently secured its first direct order from Acergy, an international offshore engineering and construction contractor and vessel owner. This project is a milestone achievement for the Group’s continued expansion into the offshore and marine sector. Specifically, the company will engineer, construct and deliver an offshore barge to the latter by January 2011.

Likely to contribute to the Group’s revenue for 2H2010 and 1H2011, the contract “underscores the recognition of the Group’s turnkey engineering, procurement and fabrication capability and uncompromising quality and safety standard,” Low remarked.

“We are bidding several projects towards different customers and hope to clinch more such direct deals to increase our order book,” he added.

Separately, ES Group also entered into an agreement with one of its Directors to acquire a 100% stake in Dalian ES Marine & Offshore Engineering Co., Ltd., which is principally engaged in providing design engineering services, for S$199,000.

Based on its current share price of S$0.28, ES Group is trading at a historical price-to-earnings and price-to-book of 6.2x and 1.6x respectively. While fundamentals of ES Group remain more than sound, liquidity of its shares it seems will be hard to come by, given that the company only placed out 21.2 million new shares during its initial public offering.

Financial highlights:

ES Group (Hldgs)  -- -- --   
Business: Co builds, converts, and repairs ships, tankers, and other ocean-going vessels. [FY17 Turnover] New building & conversion (60.5%), repair (20.2%), shipping (19.3%).

Insight: Aug-18, 1H18 revenue increased by 37.4% due to the... Read More

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