Keyfield International is poised to cash in on the offshore support vessel (OSV) boom in Malaysia, having embarked on expansion during the downcycle of the OSV market in 2014 that enabled it to assemble a young fleet with top-of-the-range specifications at reasonable capital outlays. Kenanga has initiated coverage with an OUTPERFORM rating and a TP of RM1.90.
The company has expanded at the right time, right place in 2014 amidst a prolonged downturn in the local OSV market, leveraging third-party charter contracts to refine the skills necessary for the OSV industry. This period of fleet expansion has enabled the group to enter the OSV vessel ownership market at a lower cost. By focusing on the Accommodation Work Barge (AWB) subsegment within the OSV space, KEYFIELD has positioned itself well to capitalise on the up-cycle for the AWB market.
The house anticipates that the demand for AWBs in 2024 will surpass the last peak observed in 2019. This is due to an increase in topside maintenance and Hook-Up & Commissioning (HUC) activities in Malaysia, as clients accelerate their upstream maintenance efforts. On the supply side, a persistent deficit is evident, with the count of Malaysian-owned AWBs remaining at 42, and no announcements of new build vessels to date. Therefore, the escalating demand is expected to continue driving up AWB daily charter rates (DCR).
Following its IPO, KEYFIELD is expected to transition from a 0.7x net gearing to a slight net cash position in FY24. This change comes as the IPO proceeds will primarily be used to settle cumulative redeemable non-convertible preference shares (CRNCPS) owed to Lavin Group, a major shareholder, with the remaining funds allocated towards acquiring two vessels, Blooming Wisdom and Helms 1. Such financial restructuring is projected to lower the company’s finance costs by 64% in FY24, thereby enhancing its bottom line. Additionally, the improvement in financial health provides KEYFIELD with the flexibility to consider acquiring one or two more vessels in the near to medium term.
Thanks to its strategic fleet expansion, KEYFIELD’s OSV fleet’s age profile averaged eight years old, newer than the industry’s ten-year average. Newer vessels not only offer improved fuel efficiency but also incur lower maintenance costs. Furthermore, most of KEYFIELD’s AWBs are equipped with DP2 systems, enabling operation in harsher offshore environments. This capability makes KEYFIELD’s OSVs more attractive to potential clients, potentially allowing the company’s vessels to command DCRs that are 10-30% higher than industry average in the current market.
Kenanga said the valuation aligns with the median forward PER of 10.2x observed amongst Malaysian and Singaporean-listed OSV companies during the 2010-2014 upcycle. The house attributes the premium of KEYFIELD’s to the peak cycle industry average due to its higher expected net margins and ROE for its OSV business due to its superior fleet profile.
