Background: BH Global Marine (BHGM) is a total solution provider for specialty electrical products and engineering services to the offshore oil and gas industries. Its three major business divisions are supply chain management, manufacturing and engineering services. Its clientele of 800 local and global customers include ship owners, operators, repair contractors and shipyards.
Recent development: BHGM recently said that it has entered into an agreement with Takamul Investment Company to set up a 51:49 joint venture, named Gulf Specialty Steel Industries LLC (GSSI), in the Sultanate of Oman. Takamul is majority‐owned by Oman Oil Company S.A.O.C, a commercial company whollyowned by the Government of the Sultanate of Oman.
Key ratios…
Price‐to‐earnings: 6.6x
Price‐to‐NTA: 0.87x
Dividend per share / yield: 0.7 cts / 3.6%
Net cash/(debt) per share: S$0.013
Net cash as % of market cap: 6.9%
Share price S$0.192
Issued shares (m) 480.0
Market cap (S$m) 92.16
Free float (%) 36.4%
Recent fundraising activities Oct 2010: Issuance of 30m TDRs, raising net proceeds of S$20.4m
Financial YE 31 Dec
Major shareholders Beng Hui Holdings – 59.7% (management’s holding vehicle)
YTD change ‐31.4%
52‐wk price range S$0.175‐0.365
Our view
Another form of partnership. We understand that this latest collaboration is to replace the jointventure arrangement between Sky Holding Pte Ltd, BHGM’s 60%‐owned subsidiary, and Al Lawami International LLC, pertaining to the proposed JV company, Oman Sky Steel Industries LLC, which was terminated earlier.
Next growth driver. According to management, GSSI will be engaged in the manufacture of galvanised steel wire products, mainly for use in armouring cables and security fences. The investment cost of S$3.5m was funded through proceeds from its TDR issue.
A changed business. Despite the cyclical nature of the offshore oil and gas sector, BHGM has successfully diversified its business risk through its newly‐formed engineering services division. Notably, sales contribution from this segment climbed to about 51% of its overall revenue in 2Q11. To better meet customer demands, it plans to enhance its product/service offerings by adding new products and seeking synergistic M&A acquisitions. In the meantime, management is looking to expand its regional footprint particularly in Indonesia, the Middle East and India.
Appears undervalued. The stock currently trades at FY11 PER of about 6.0x (or 0.87x P/B). We note that major shareholders have also been actively buying shares in the open market given the undemanding valuation and supported by decent dividend yield of almost 4%.
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