Kim Heng Offshore & Marine Holdings Limited is offering 174 million shares for the initial public offering (IPO) at $0.25 each, of which 160 million are new shares and 14 million are vendor shares. There will only be 3 million shares for the public with the balance via placement.
The IPO will end on 20 January 2014 at 12pm and begin trading on 22 January 2014. The market capitalisation post IPO will be around $177.5 million.
Kim Heng has a long history and is an established integrated offshore and marine value chain services provider. The Company offers a one-stop solution for oil & gas projects with customers in more than 25 countries globally.
The Company specializes in offshore rig services and supply chain management as well as vessels sales.
The last three years figures have been fairly inconsistently with revenue fluctuating and net profit hovering around the $17-18 million in the last two years. The first half performance also showed a slower pace versus the same period last year. The net profit declined by 24 percent from the same period last year. As I am not privy to the forward looking results, I can only make a guess.
According to the prospectus, the post invitation share cap is 710 million shares and the adjusted earnings per share (EPS) for 1H2013 is 1.1 cents. I will assume the full year EPS to be = 1.1 divide by 0.6 (since 1H seemed to be stronger than 2H for FY2012) = 1.8 cents. Based on the IPO price of 25 cents, the forward price earnings ratio (PE) is around 13.8x.
However according to the fact sheet from Lim & Tan, it expects a more robust second half and recommends investors to ‘subscribe’ for the IPO. Assume a more robust second half, my EPS will be approximately = 1.1/0.4 = 2.75 cents and that translates into a forward PE of around 9x (which is reasonable).
Looking at the list of shareholders, Credence Capital Fund II is run by Tan Chow Boon, Koh Boon Hwee and Seow Kiat Wang and one of the investors of Credence Capital Fund II is Mr. T.
Credence bought into Kim Heng at an average price of 20 cents. As they invested only in 15 May 2013 and holds a 17.6% stake post IPO, they are still in the value creation mode. Given that it is supposed to generate private equity like returns, Credence’s target price to exit will probably be above 40 cents with a two-three years time frame.
What I Like About The Company
Established brand name with more than 40 years track record
Oil and gas sector exposure
Blue chip customers
Reputable institutional investors
My Fair Value
Assuming my more “robust” EPS of 2.75 cents is correct, I will give the IPO a fair value PE range of between 10-12x forward PE and that translates into a price of between 28 cents to 33 cents.
I am not privy to any three year plan of the Company but I believe Credence will not be there for the short term. As such, I will not give the 1H 2013 results too much weightage. Ms Syndicate told me that this IPO is very hot and will have a +10 cents debut. I will tamper that expectation down a bit and say that I believe an opening above 30 cents is very likely even though the huge placement float of 174 million can be a turn off unless they place the shares to institutions and strong hands. If you want to give this a punt, I will say just do it but make sure you apply at least 50-100 lots so that you will get around 3 to 5 lots.
3 Chills for me this time.