Background: BH Global Marine (BHGM) is a provider of specialised electrical products and solutions to the offshore oil and gas industry. It has a parts inventory of close to $40m. Its main business is in Singapore but it distributes its products through partners and distribution channels throughout Asia and Australia as well. It also offers customised design, manufacturing, testing and commissioning of marine electrical equipment, as well as turnkey installation.
Recent development: BHGM’s share price has stayed relatively unscathed by the recent selloff, declining by 10% since the beginning of the month. This is despite being exposed to a highly cyclical business. It may be due to the fact that the stock is relatively cheap to begin with.
Key ratios…
Price‐to‐earnings: 6.3x
Price‐to‐NTA: 0.86x
Dividend per share / yield: 0.7 cent / 3.9%
Net cash/(debt) per share: S$0.013
Net cash as % of market cap: 7%
Share price S$0.190
Issued shares (m) 480.0
Market cap (S$m) 85.9
Free float (%) 36.4
Recent fundraising activities TDRs – Oct 2010, raised S$21m
Financial YE 31 Dec
Major shareholders Beng Hui Holdings – 59.7% (management’s holding vehicle)
YTD change ‐36.1%
52‐wk price range S$0.175‐0.380
Our view
Higher focus on engineering. While BHGM’s earnings have historically been rather volatile, its recently established engineering services division will allow it to have a longer dated and more secure revenue flow. The division was only established in 1Q10, but now accounts for 40% of total revenue, albeit at lower margins, due to its turnkey nature. The engineering division also feeds its traditional supply chain business.
Strong 1H11. BHGM recently posted 1H11 revenue growth of 78%, driven by the engineering services division, and net profit growth of 35%. The company has progressively secured more engineering contracts and its current orderbook stands at around $25m.
Cash to spend. In October last year, BHGM issued 30m Taiwan Depository Receipts (TDRs) and raised some $20m. Some of this cash has been used to pay down bank loans and for working capital purposes, but the remaining balance of $6.4m has been earmarked for investments, acquisitions and the purchase of fixed assets.
Cheap valuations. The stock is trading on a historical PER of 6.1x, while earnings are on track to surpass that of 2010, barring any sharp downturn in business that could lead to provisioning and write‐downs. Net cash stands at $6.4m, and BHGM trades at 0.86x P/B. It also has a track record of paying decent dividends, with FY10’s yield at 3.9%, based on its current price. The majority shareholders have also been buying shares over the past month.
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