KIM Heng Offshore & Marine (Kim Heng) is exploring some merger and acquisition (M&A) deals to expand its business, particularly to grow its supply-chain services to the offshore sector.
Thomas Tan, the company's executive chairman and CEO, tells The Business Times that the company has a "couple of M&A (deals) in the pipeline", which would "strengthen and also increase (our) market share in the supply-chain (segment), both locally and overseas".
Kim Heng's core business lies in the offshore rig services, but according to Mr Tan it is also looking to grow its profitable supply-chain management segment to ride on the growth of offshore services.
"It is all related to rig support and we are looking to provide more (supply-chain management) services in-house. Some of these services we do not have, and (there are) areas where we could expand our resources and strength. So by doing the M&As it will help us to do more," Mr Tan explains, in an interview.
The group listed on the SGX in January this year at 25 cents per share for 174 million shares, to give it a market capitalisation of $177.5 million. It was a popular IPO with investors, as its share offering, which was 5.8 times subscribed, jumped as much as 28 per cent in price on its debut.
This backing by investors and cash proceeds from the listing has encouraged the company to expand. Mr Tan discloses that part of the cash proceeds would be used to finance M&A activity.
It would also go towards the proposed extension and enhancement of the company's yard, for which it is currently awaiting JTC approval, Mr Tan confirms.
Kim Heng's continued growth and strong financial performance would continue to underpin investor confidence, Mr Tan believes. For its first quarter ended March 31, Kim Heng's net profit grew 16 per cent year-on-year to $3.9 million as revenue also increased 10 per cent to $23.6 million. This was on the back of higher revenue from its chartering and towage services, as well as its marine offshore support services.
Kim Heng's strong financial results could spill over into subsequent quarters, as Mr Tan suggests that yards in Korea and China continue to build rigs to be deployed.
"We see continued delivery of rigs from these yards and also from Brazil and Africa to this part of the world. Everybody is looking to the region because Asia is a energy-hungry region where everyone is trying to maximise domestic production. So we expected that activity will increase in the next six months to a year."
Mr Tan is optimistic that charter rates would also continue to rise as offshore support activities increase in tandem with the increase in rigs being deployed, giving Kim Heng's revenue prospects a boost.
He admits, however, that there is a chance of a base-case scenario as there is risk of some over-capacity developing in the rig market, particularly in the jack-up and drill ship floater market.
Even so, Mr Tan points out that such a scenario is unlikely to affect Kim Heng's prospects. "For us, we are providing rig services, so whether the rig is stagnant and looking for work or doing work, they still need services from us to support the rig. In that sense, we are indispensable to the drilling contractors as they need people to run the rigs - suppliers, welders, cleaners or to send a piece of equipment to the rig."
Overall, Mr Tan has targeted a 20-30 per cent growth for Kim Heng in the next one year as he highlights that the global drilling outlook remains very robust.
The group has secured forward commitments of over $40 million with Mr Tan revealing that these comprise projects for rig servicing and maintenance and supply contracts, with most of them to be recognised in the next "two or three months".
Mr Tan adds that these projects are for new rigs that are currently being built as well as for existing ones in operation. He expects these forward commitments to grow as there are rigs coming in from Europe towards the end of the year.
With offshore services and rig demand continuing to grow in the region, Kim Heng's planned expansion could lead it to be at the right place at the right time. And its IPO has given it the financial muscle that it needs to achieve its goals.