Managing director, Chua Meng Hua is from Beng Kuang's founding family. Photo by Pak Yudan.
BENG KUANG MARINE’S corrosion prevention service is basic work required in every shipyard as every ship needs to be docked every 2 to 5 years.
However, its management is looking at infrastructure engineering to drive growth - 1Q09 segment revenues were up 49% yoy and reached S$14.1 million.
Beng Kuang had bought a new yard (its first) with 32.8 ha in land area and with 350 meters of waterfront length to expand its infrastructure engineering division.
”We are progressing from being a subcontractor to being a main contractor,” said its managing director, Chua Meng Hua, at a Financial PR road show last week.
Yard operations commenced in 4Q08, right after Beng Kuang secured its biggest contract ever - a S$21-million deal from Leighton, one of Australia’s largest contractors.
The job involves provision of deckhouse supply, fabrication, installation, test and commission services for a new accommodation barge that can house a crew of 260 persons.
Work on the Leighton project started in Oct 2008 and is expected to complete this Sep.
Executive director Alan Yong was Labroy Marine's CFO in the days before its takeover by Drydocks World. Photo by Pak Yudan.
”The Leighton project contributes significantly to FY09 earnings,” said executive director, Alan Yong.
Yards are currently building production modules, according to the management. Work on supporting modules such as for the barge project that Beng Kuang is working on immediately follows.
Growth from its yard operations is a contrast to its other divisions.
Revenues from its corrosion prevention service contracted 21% yoy to S$13.7 million for 1Q09. Its supply & distribution revenues also fell 15% to S$6 million.
Below is a summary of the queries raised by investors at the road show and the management’s replies:
Q: Why don’t shipyards have internal corrosion prevention services, but outsource it?
A: Painting, blasting and corrosion prevention is one of the trades by skilled workers that shipyards need.
It is the standard practice among Singapore (and Batam) yards to outsource corrosion prevention.
Firstly, we can do it at a lower cost. Secondly, farming out jobs also mean less of a manpower hassle for the yards.
Infrastructure engineering contributed 42% to 1Q09 revenues compared with 28% in 1Q08.
Q: Can you explain the quarter-to-quarter variation trends in your revenues?
A: Our corrosion prevention projects are mainly short-term in nature.
Q: Has your order book of S$33 million as at 1 Apr 2009 grown to-date?
A: The order book disclosure of S$33 million refers to significant once-off projects. This does not include recurring business from the Keppel Group and ST Marine.
I.e. this excludes subcontracted electrical works and steelworks secured by the infrastructure engineering division for yards in Malaysia, Indonesia (Batam) and Singapore.
As a ballpark estimate, we service about 600 ships a year at an average of S$30,000 per job. (Each job takes a month.) This works out to annual revenue contribution of about S$18 million from recurring corrosion prevention business alone.
Corrosion prevention & painting service includes labeling a vessel's watermark.
Q: So did most of the S$131.5 million revenues generated for FY08 come from projects?
A: Corrosion prevention revenues were high in FY08 as there were significant one-time projects on oilrigs from Drydocks World.
Q: Your top line growth appears to have hit a plateau. Please tell us why should we be interested in your company?
A: In Sep 2008 with the Leighton deal, we started taking on large projects. This job occupies only a fraction of the space in our new yard in Batam.
We are now equipped to take on other projects of similar size, or even larger.
Q: Why was Leighton willing to give the deal to you, a new player?
A: We have a track record of subcontract work with all the yards. We have the manpower, facilities and offer quality service at a competitive price.
Q: What was your investment cost in the yard?
A: It is S$10 million to-date, including land cost. Our yard needs further facility upgrade.
Q: What is your cash flow situation like?
A: The yards are cash-rich and do not delay payments.
