MAYBANK Securities initiated coverage on Beng Kuang Marine with a “buy” call, as the research house is positive that the company will benefit from floating production storage and offloading (FPSO) upcycle.
The brokerage issued Beng Kuang a target price of S$0.47, which represents 9 times its price-to-earnings (PE) estimates for the company for the financial year 2024.
On Monday (Jul 8), analyst Jarick Seet said he expects Beng Kuang’s profit after tax and minority interests (Patmi) to grow at a compound annual growth rate of 51 per cent from FY2023 to FY2027.
This comes as Beng Kuang is backed by a sector tailwind and “robust” pipeline of projects, said Seet.
Through its subsidiary, Beng Kuang has become a major player in FPSO maintenance, repair and services as it benefited from greater global FPSO activity, noted the analyst.
Beng Kuang Marine provides corrosion prevention services relating to repair of ships, tankers and other ocean-going vessels.
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Amid a growing FPSO demand, Seet also noted that Beng Kuang’s subsidiary has increased its labour work count to 700 staff in 2024.
As such, Seet said he expects gross and operating level margins to expand as the Beng Kuang “enjoys better margins” on new contracts and also through higher operating leverage.
Looking ahead, Seet said he projects a dividend yield of 4.5 per cent for the current financial year, as the company turns net cash backed by a series of asset sales, as well as strong operating profits.
In his view, Beng Kuang is also likely to pay out 20 per cent of its Patmi for dividends going forward.
He also noted that the disposal of the remaining portion of the company’s Batam shipyard could bring in around S$13.8 million – making up almost 30 per cent of its market capitalisation – and a special dividend for its shareholders.
In June 2023, the company said it will sell 100,970 square metres of land in its Batam shipyard property for S$9.9 million.
Additionally, Seet also believes that the counter, which is currently trading at 4.5 times its FY2024 PE estimates, is “substantially undervalued” against its peers who are trading at 12.2 times.
“We believe that subsequent quarters should continue to pick up strongly due to seasonality and more projects executed as it ramps up its labour force,” he added.
Shares of Beng Kuang Marine were trading up 12.7 per cent or S$0.035 at S$0.31 as at 10.49 am on Monday.
