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NRA Capital Pte Ltd

Written by: NRA Team

Friday 20 Mar 2015

BH Global Marine - 4Q14 results review

Every cloud has a silver lining

While the short-term remains cloudy, we view its current share price to be fairly valued.

As the headwind continues, BH Global’s 4Q14 revenue fell 28% yoy with drops seen in all product segments:- 1) Revenue from Supply Chain Management Division decreased by 9% yoy due to slow down in activities in the marine sectors, 2) Manufacturing Division tumbled by 86% yoy due mainly to the reclassification of Gulf Specialty Steel Industries (GSSI) from a subsidiary to a joint venture from 4Q14, and 3) Engineering Services decreased by 53% yoy due mainly to the substantial completion of a major project in 3Q14 which commenced in 3Q2013 and the delay of a new major project arising from more time required for technical clarifications with the client. Supply Chain Management Division remains the largest contributor of 89% of the total turnover in 4Q14.

Key takeaway from results briefing:             

Supply Chain Management Division

  • Expect the marina industry to continue to show signs of weakness as oversupply of ships may cause shipping cost to reduce.
  • May see signs of recovery if falling oil prices stimulate consumption and economic growth.
  • Offshore oil & gas industry expected to remain tough due to falling oil prices, however, long-term dynamics of supply and demand are still consistent and expect recovery in early 2016.

Manufacturing Division

  • Z-Power Automation (ZPA) expecting to complete the disposal by 16 March 2015. Approximately S$9.6m cash will be received within 2 weeks. Still unknown if this will be reflected in 1Q or not.
  • BH Global invested in GSSI in 2011 with Omani partner and commencement of production of galvanized steel wire in Oman in 4Q2013.
  • Initial production capacity 60,000 tonnes per annual or equivalent to US$60m revenue, potential to increase capacity to 200,000 tonnes.
  • Last year, GSSI’s utilisation rate was only 30% as compared to breakeven points at 70% utilisation rate, however, the situation is improving now, so far first two months in 2015 are utilised between 50 and 60% and management expects to reach 90% by end of the year.
  • GSSI’s is granted 5 years tax free on the galvanized steel wire project.
  • Its 37.3% owned associate, GL Lighting Pte Ltd (GL) did not do well in 4Q14 due to its plant relocation process. While the relocation is completed, it is still not fully operational yet.  Management intends to acquire more shares in GL.

Engineering Services Division

  • Cost overrun of a major project by the engineering services division in FY2014.
  • S$7.6m remaining contract value till end 2015. Order book visibility remains low and management expects greater losses for the moment.

Our view:

After changing its joint control instead of major control over its 51% owned GSSI, in accordance with FRS110, the group no longer needs to consolidate GSSI’s results going forward and is using the equity method and will be included in the balance sheet under “investment in joint ventures”. As of its 2014 balance sheet, net asset for GSSI has reduced significantly from S$9.7m in 2013 to S$2.3m, we believe the potential is promising if their partner can turn GSSI back to profitability. This move also reduced its net gearing significant from 40% in 2013 to 12% as of December-2014.

We believe BH Global will recognize an approximately S$2-5m exceptional gain from disposal of ZPA (about S$7m net asset for ZPA on its 2013 balance sheet).

We view its core business from supply chain management will remain profitable given its good track record in the past but this is offset by the weak engineering services division. At S$0.12, BH Global trades at 0.75x PBR, we view its current share price to be fairly valued.



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