Maybank Securities analyst Jarrick Seet has kept his “buy” call on Beng Kuang Marine BEZ with a lowered target price of 27 cents from 29 cents previously following the group’s 3QFY2024 ended September results.
In the period, Beng Kuang’s revenue rose 25% y-o-y to $26.8 million, while profit before tax (PBT) increased by 27% to $3.79 million.
As a result, the analyst has cut his FY2024/2025 profit after tax and minority interests (patmi) forecasts by 28% and 39% respectively to factor in lower-than-expected growth as well as an increase in wages.
Seet notes that the lower PBT missed his expectations partially due to dry docking of one of its customer’s accommodation barges.
“One of its customers’ barge went for dry docking in July, resulting in some downtime and lower-than-expected profitability and revenue in 3QFY2024, but has since deployed in late October we expect a strong 4QFY2024,” writes Seet in his Nov 15 report.
Meanwhile, Beng Kuang’s infrastructure engineering (IE) segment’s growth in the quarter remained robust, fuelled by demand for asset integrity solutions supporting floating production storage and offloading (FPSO) as well as floating storage and offloading (FSO) in onshore and offshore markets.
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Seet understands that the group’s corrosion and prevention business is also on-track to make a slight profit this year from loss-making a year ago.
He writes: “We expect this business to continue to grow and generate about $2 million to $2.5 million of profit in FY2025.”
“While we remain bullish on the FPSO market and ASOM as it recorded a strong performance, the warrants dilution has put a cap on its share price upside for FY2024. However, we will review its cost control and core earnings performance going forward and make any necessary adjustments,” concludes Seet.
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Meanwhile, upside swing factors include a strong patmi FY2023 to FY2027 compound annual growth rate (CAGR) of 51%, a potential yard sale of $13.8 million and Beng Kuang riding the FPSO tailwind. Other positive factors include the group potentially branching into module fabrication which could enable larger revenue recognition, as well as gross and net margins continuing to improve.
Conversely, downside risks include margins and profitability being impacted if a recession occurs, a sharp drop in oil price which could potentially affect Beng Kuang’s pipeline of jobs, rising labour costs impacting margins and lastly, declining FPSO activities impacting profitability.
As at 11.55 am, shares in Beng Kuang Marine are trading flat at 22.5 cents.
