Baker Tech – Near Term Challenges but Long Term Prospects from New Liftboat Division

In line
with my previous blog post
Baker Technology Limited – Better
Tomorrow
, Baker
Tech announced a set of poor 2Q2014 results earlier this week, due to lower
revenue and absence of divestment gain from Discovery Offshore (DO) Rig last
year.
Quarterly Results – Earnings Plunged

For 2Q14,
  • Net profit drop 92% to S$1m Vs S$11.3m yoy
  • This
    is due to absence of S$8.9m divestment gain on DO last year.
  • Excl gains, net profit drop 61% Vs S$2.5m yoy
  • Rev
    drop 20% to $17.8m Vs S$22.1m yoy
  • EPS
    down to 0.1c Vs 1.35c yoy

For 1H14,

  • Net profit fall 81% to S$2.7m Vs 14.6m yoy
  • Excl gains, net profit fall 52% Vs S$5.7m yoy
  • Rev
    drop 23% to $36.8m Vs S$47.2m yoy
  • EPS
    down to 0.31c Vs 1.84c yoy

The company
is experiencing higher payroll costs and higher operating expenditure as a
result of newly incorporated subsidiaries and new premises. Forex loss of
S$0.7m recorded due to weakening of USD against SGD. Shareholders’ funds down
15% as at 30 June 2014 due to payment of dividends of $45.2 million to
shareholders. This is partially offset by proceeds from the conversion of warrants
and retained profits for the period.

Strong Balance Sheet & Healthy Order Book

Financial
position is strong with $153.9 million in cash and short-term deposits with
zero gearing. 
Note however that cash position drop from 205.9m
reported as of End13, likely due to investments on new subsidiaries. Net order
book healthy at US$61m as at Jun14, with projects expected to be completed
within the last 12-18 months. The company also received Singapore corporate
awards 2014 for best managed board – gold, and best annual report – silver, for
companies with less than S$300m in market cap.

Prospects from new Liftboat Design
New subsidiary
Baker Engineering has launched its new liftboat business by completing its new
in-house design. Construction of liftboat will be commencing in Baker’s Singapore
yard for sale or ownership and charter with or without partners.

Rolf’s View

Without
deviating from my views in Mar blogpost, near term business
prospects are very challenging due to competition on equipment business. This will thin revenue and profit margins and worsen without any contribution from divestment gains. The jackup
rig market near term prospect is also challenging with Keppel and Sembcorp rig
order intakes reducing and probable over-supply of rigs in the near term as a
results of IOC plan reduction in Capex. Refer to my blog post 
Keppel and Sembcorp Marine Hit by Slow Orders – Chinese Competition
In my last
post on Baker Tech, I estimated that excluding divestment gains, profits estimated to be S$12-15m
range. From its latest 1H14 results, estimated annualized profits will be 11.4m.
The cash and equiv of S$154m as of End 1H14 translate to S$0.17 per share. At
current share price of S$0.27 with a market cap of S$244.4m, a very
conservative/rough estimate of the FY14 PE including cash on hand, is ~ 7 to 8x. This PE estimate  still coincide with industry standard. Excluding cash, PE estimate is 21x. 
In the long
term (expect 2016 and beyond), the success of the company may fall on the shoulders of its new Liftboat
division. If successful, not only will the liftboat division contribute
positively to earnings from charter or divestment, it will also mean more
revenue for its very own Sea Deep equipment business of Jacking system, cranes,
skidding systems, fabrications etc. 
While
Liftboat market seems rather unpenetrated and very promising in this part of
the world, we are starting to see increase congestions from more and more players. Also refer to my blog post on
Liftboat below. 
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