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06 August 2024

THE CONTEXT • It's rare that an analyst initiates coverage of a small-cap with a positive report, only to slash the target price just 4 weeks later. But that has just happened to Beng Kuang Marine whose stock price surged this year, thanks to a robust oil and gas industry.  • The trigger for the 38% target price cut this week by Maybank Kim Eng (from 47 cents to 29 cents): Beng Kuang's 1H2024 core net profit came in below expectations because its admin expenses soared 72% to $11.0 million.  Beng Kuang (current market cap: S$39 million)said the admin expense increase was largely attributable to "higher remuneration and salaries due to increase hiring at our IE business and bonus provisions which were in line with the Group’s improved performance." "IE business" refers to Infrastructure Engineering -- maintaining FPSOs to ensure their hull integrity and overall operational safety. The bulk of the group's revenue comes via its 51% subsidiary, Asian Sealand Offshore and Marine Pte Ltd (ASOM).  • Out at sea are FPSO (floating production storage and offloading) vessels that process oil from nearby oilfields, and store it until it can be transferred to a tanker.   See Beng Kuang Marine's commentary on its FPSO business in 2023:  Read excerpts of Maybank Kim Eng's update below ...

Excerpts from Maybank KE report
Analyst: Jarick Seet

Beng Kuang Marine (BKM SP)
2H likely to be stronger

BKM’s 1H24 revenue surged 88% YoY to SGD59.5m, mainly due to the strong performance by its 51%-owned subsidiary ASOM, which boosted IE’s organic revenue by 142% YoY in 1H24. 

We expect 2H24E to likely replicate or perform even better than 1H24 due to the robust tailwind in the FPSO sector.

However, much higher than expected admin expenses hampered operating margins but we believe this will improve going forward.

BKM proposed a 3-year warrant on the basis of 3 bonus warrants for every 10 existing ordinary shares held with the right to subscribe at SGD0.22/share, exercisable 6 months from the date of listing of the warrants and expiring 36 months from the same date.

Total net proceeds could amount to SGD13.02m.

Full report here.

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05 August 2024

THE CONTEXT • So Japfa has indeed turned around in 1H2024, with a net profit of US$51.7 million. Earlier, DBS Vickers had held up its view that the turnaround would happen. See: JAPFA: Broker says this stock is "on cusp of a turnaround' Headquartered in Singapore, Japfa is one of the largest poultry producers in Indonesia and in the region. (Japfa also has a smaller swine business, mainly in Vietnam).  • Japfa controls the entire work flow: from producing the feed that feeds the chickens, to breeding and raising the chickens, and finally processing and selling the chicken meat and eggs.  • Japfa's stock has surged 45% since the start of 2024, from 22 cents to 32 cents recently. A key trigger for the run was a Bloomberg report in early March on a possible privatisation of the company. See: Top Asia Poultry Firm Japfa Owners Said to Mull Go Private Deal. Japfa's response is here (which didn't outright say it wasn't in the works).  • The privatisation possibility aside, after 2 years of losses, Japfa is giving investors reason to anticipate a profit recovery. Read CGS-CIMB'S take on the 2Q2024 results -- highlights include higher selling prices and lower feed ingredient costs. Naturally, it has a higher target price now ....

Excerpts from CGS-CIMB report
Analyst: TAY Wee Kuang 

Japfa Ltd: Likely sustained profitability in 2H24F

2Q24 earnings uplift from lower raw material prices

2Q24 revenue of US$1.1bn brought 1H24 revenue to S$2.3bn, in line at 50%/54% of our/Bloomberg consensus FY24F estimates.

However, core net profit exceeded expectations on lower raw material costs, with the qoq jump in PBT of US$45.9m contributed predominantly by gross profit increase of US$40.2m.

This was due to lower raw material prices for feed, such as corn and soybean meal (Fig 2).

We also observed that JAP’s inventory level increased by c.US$20.5m in 1H24 to US$774.7m, which we believe suggests JAP stocked up on raw material in view of lower prices.

This should translate to a stable cost structure for 2H24F, in our view. 

ASP trends remain uncertain given underlying market demand

Japfa is mainly into poultry breeding and farming in Indonesia. Photo: Company2Q24 showed positive ASP trends with Indonesian poultry and day-old chick (DOC) prices up 2.8% and 37.2% qoq (Figs 4 and 5), respectively, while Vietnam swine prices were up 16.3% qoq (Fig 6).

However, management commented that buoyant prices were most likely driven by a reduction in supply rather than a recovery in demand.

In Indonesia, industrial players had conducted voluntary culling measures to mitigate persistent oversupply over the past two years while the ongoing African Swine Fever (ASF) outbreak in Vietnam has caused industry-wide reduction in swine fattening volumes, according to management.

However, we note that broiler prices have declined for three consecutive months since Mar 24, with high DOC prices suggesting that independent farmers could be entering the market to capitalise on the high broiler prices, which could result in an oversupply situation and further decline in broiler prices for 2H24F.

On the other hand, we expect swine prices to hold up for 2H24F given the six-month swine fattening period before additional supply enters the market.

Reiterate Add; better visibility on profitability for FY24F Tay Wee Kuang, analyst.We raise our FY24F/25F/26F EPS by 282.8%/104.9%/97.6% from a low base as we were previously cautious of JAP teetering between profit and losses across quarters given volatile ASPs. However, we think that the decline in raw material prices should support sustained profitability for FY24F. We retain our Add call. Our TP is lifted to S$0.43, still based on 0.7x FY25F P/BV, which is 0.5 s.d. above its 10-year mean as we think consecutive quarters of profitability will re-rate the stock.

Re-rating catalysts: abating inflation across Vietnam and Indonesia that could spur higher consumption of protein.

Downside risks: industry oversupply of broilers resulting in a steep decline in broiler selling prices, outbreak of ASF in JAP’s facilities leading to one-off losses.

Full report here

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03 August 2024

• Singapore-listed Mermaid Maritime is capturing new opportunities that are surfacing in the oil & gas industry it serves.  • A large opportunity is decommissioning work on oil & gas production facilities out at sea, increasingly numbers of which have reached, or are reaching, the end of their productive life.  Lim & Tan Securities' recent initiation report spells out other favourable dynamics: MERMAID MARITIME: Stock has risen 100% year-to-date. Analyst says it potentially can go up another 50% • Spearheading Mermaid's drive is Paul Whiley, its chief operating officer. In an article below, he shares insights into the industry's new dynamics and Mermaid's quest to ride the wave.  • By the way, long ago, Mr Whiley served as a diver with the South African Navy and was among those called upon to execute a rescue mission of a sinking cruise ship. For his exceptional acts of bravery detailed here, he received South Africa Defence Force's highest bravery award (more on that below). Read the following article by SGX Research ...

Paul Whiley, COO and Executive Director of oil and gas offshore and subsea services firm Mermaid Maritime, shares how it is moving into decommissioning and other sunrise specialities to thrive in the long term.

“We’ve also been involved in decommissioning – removing various infrastructure for disposal, reuse or recycling at the end of an oil or gas field’s economic life – but not to the extent that we’ve planned for the future. We’ve very excited about delving deeper into this work because there’s at least 50 years’ worth of business ahead in this area, and it’s eco-friendly.”

He explains that there are vast numbers of offshore oil and gas wells worldwide, and oil and gas majors and governments have increasingly committed to returning marine environments to their original status once harvests from the wells are completed.

“This means that we will see more demand for decommissioning-related services.”

Mermaid has already broken into the surging United Kingdom market for such work. Since 2023, it has inked two three-year contracts, with international oil and gas firms such as Shell, to implement decommissioning projects in the region.  



All told, Mermaid has secured offshore contracts in Thailand, the Middle East, United Kingdom and Western Sub Sahara, with a total value of US$735 million as of 31 March 2024, for cable laying, subsea pipeline tie-ins, inspection, repair and maintenance, transportation and installation, decommissioning and related work.

These projects are scheduled to be performed and realised from FY2024 – FY2026. 


Meeting the moment in business

Whiley shares that Mermaid’s success to date has come from keeping an eye out for potential opportunities and seizing them at the right time.

For instance, as countries and the oil and gas industry were starting to recover from the Covid-19 pandemic in late 2021, it spent US$16 million to buy a 50 per cent ownership stake in a crucial offshore construction vessel.

“We had about US$53 million in the bank, so it was a big investment, but we took control of our position in the cable space through that purchase. The Millennium 3 vessel's unique design and capabilities earned it unprecedented approval from all the big majors in the Middle East to lay cable in waters shallower than 10 metres, using dynamic positioning, and eliminating the need for anchoring.

"This has meant much quicker, safer and more seamless project rollouts for the Group and our clients, which in turn has organically driven a significant uptick in capacity, whilst simultaneously rewarding our shareholders with solid upside. Moreover, for the longer term, the cable space makes up a considerable part of the new green revolution [in wind] – which is obviously always a driver.”

It also capitalised on the United Kingdom’s regulation changes, introduced in 2022 to stop oil and gas firms from opting to pay fines instead of fulfilling their more costly decommissioning responsibilities, to make its inroads into the region’s decommissioning market. “We knew we had a small window to make our name known there quickly,” Whiley says. 

“We made a play there and got the first job after the rule change. Even though we incurred an initial loss on that project, it was worth it. We made a space for ourselves in the market and have developed it from there, which led to our two, more recent contracts with Canadian Natural Resources and Shell.”

Whiley adds that such close attention to industry developments and openings must be paired with a willingness to put in hard work.

Before he left Mermaid in 2016 for family reasons and rejoined it as its chief operating officer in 2020, he co-founded its existing business unit in the Middle East and spent years building it to its current leading position there. 

“If you want to stay on top and maintain critical momentum, then you really need to try to make the company vital.”

The Mermaid military ethos 

Over the years, he has also inculcated his dedication to planning – honed during his service in the South African military, when he became the most decorated navy diver in its history, with a Gold Cross of Honour conferred by the government – throughout Mermaid.

“Any project is like a military operation, in that you have a much better chance of succeeding with planning.”



“We try to instil this ethos, to look at every project as a little military operation and run it like that.”

He highlights that this has fostered more independent, proactive project managers who are up to the task of driving the company forward. “It’s a sign of sustainable management practices when the project division can run its operations autonomously and without executive involvement or guidance.”

“At the same time, we step up to help one another when necessary, and have one another’s interests at heart.”

Underlining Mermaid’s supportive culture, it has many long-tenured staff among its workforce of more than 1,000 engineers, divers, technicians, surveyors and others –  including Whiley’s former fellow soldiers in his military unit. 

“Many of them came to work in Mermaid, and most remain with us to this day. In fact, they work so hard that I find myself constantly having to “force” them to make time for themselves – go to the gym, collect stamps, or do whatever else they enjoy outside of working for our great company – this is the kind of passion that they and many others in our firm have, and I am convinced that is what keeps us successful.”

About Mermaid Maritime PCL

Mermaid is a leading international subsea and offshore drilling services company for major oil and gas companies or their contractors, with its corporate headquarters based in Thailand. With operational bases in South East Asia, the Middle East and the North Sea, the Group’s main operating business is its offshore services segment.

Mermaid provides full turnkey services to oil and gas majors operating offshore through its diversified portfolio of subsea vessels, specialised diving equipment and remotely operated vehicles. The Group has been in the offshore business for over three decades,  and boasts a team of more than 500 professional divers, technicians, surveyors, management and support staff. 

Mermaid, in which Thoresen Thai Agencies PCL (TTA) holds a 58.22% stake, commenced its operations in 1983. The Group was partially acquired by TTA in 1995 and was successfully listed on Singapore Exchange (SGX) on 16 October 2007.

For more information, please visit: https://www.mermaid-group.com/home

About kopi-C: the Company brew

This article was originally published in kopi-C, a regular column by SGX Research in collaboration with Beansprout (https://growbeansprout.com), a MAS-licensed investment advisory platform, that features C-level executives of leading companies listed on SGX. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.

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01 August 2024

THE CONTEXT •  Two of UOB Kay Hian's alpha picks turned from being lazy to supercharged in July 2024. They are Civmec and CSE Global. •  Civmec (+18.9% m-o-m) and CSE Global (+18.8% m-o-m) were flattish for the most of 2024. UOB KH says Civmec outperformed on continued order wins and a change of domicile to Australia while CSE Global rose higher due to its upcoming attractive 1H24 dividend. • Meanwhile, in a 1 Aug update, the broker kept its portfolio virtually unchanged -- just adding SingPost and removing SIA Engineering. • One of the remaining alpha picks is Centurion Corporation, a S$538-million market cap company. ASPRI-Westlite Papan: This Centurion worker accommodation is strategically located near Jurong Island, home to more than 100 global energy and chemical companies. Centurion's accommodation profit had been turning up even through the pandemic.Its stock has gained 60% since the beginning of the year (from 40 cents to 64 cents), as its FY23 results continued a long-running profit streak (see chart).  As the largest Purpose-Built Workers accommodation (PBWA) provider in Singapore and Malaysia, Centurion is riding on high demand for foreign workers' living quarters. See: CENTURION: Homes for workers can't be built fast enough, so this company is enjoying a rental boom UOB Kay Hian has a target price of 77 cents for the stock. Read on ...

Excerpts from UOB Kay Hian report
Analyst: Adrian Loh

Centurion Corporation (CENT)

Similar to its PBWA assets, the company’s Purpose-Built Student Accommodation (PBSA, 24% of revenue) segment saw a material 25% yoy increase given the seasonality of student entries into its Australian assets.

As a result, financial occupancy at its UK and Australian PBSA assets were 99% and 90% respectively.

Both geographic segments continue to witness robust pre-bookings for the forward academic years, and rental increases have tracked at 8-10% yoy.
 

• Maintain BUY with a target price of S$0.77, which is based on a target PE multiple of 7.9x and in line with Centurion’s average PE over the past 10 years.

 SHARE PRICE CATALYSTS

• Events:
a) Successful capital recycling efforts or capacity expansions involving JVs could result in a more asset-light business model that thus requires less capital intensity, and

b) higher-than-expected dividend payout in 2024. 

• Timeline: 6-12 months 

Full report here.