KS Energy (KSE) reported a 3.3% fall in revenue to S$492.7m and a net loss of S$78.8m in FY11 vs. a net loss of S$98.4m in FY10. Revenue was within our expectations but the net loss was greater than expected, impacted by one-off items and higher finance costs. We estimate core net loss of about S$40.6m for FY11. Most of KSE’s core assets are chartered, and the distribution business is still providing a steady stream of earnings. The group’s performance has also improved in terms of narrowing its net loss but we are still unsure when we can see a return to profitability. Based on 1.5x FY12F NTA, we maintain our fair value estimate of S$0.91 and HOLD rating on the stock due to limited upside potential.
FY11 results impacted by one-off items
KS Energy (KSE) reported a 3.3% fall in revenue to S$492.7m and a net loss of S$78.8m in FY11 vs. a net loss of S$98.4m in FY10. Revenue was within our expectations but the net loss was greater than expected, mainly due to 1) stock provisions of S$15.3m, 2) an S$18.6m expense for a non-core capital equipment asset to bring it in line with expected realizable value, and 3) higher finance costs. The S$15.3m stock provision is an allowance for inventory obsolescence with a new inventory policy in the distribution division. As for the S$18.6m expense, we understand that it is mainly attributed to the Atlantic Rotterdam; the group’s assets undergo impairment tests at the end of each year. Excluding one-off items, we estimate core net loss of about S$40.6m for FY11.
Update on KS Endeavor
Due to the fire incident in Jan this year, KS Endeavor (50%-owned by KS Drilling) has been declared an actual total loss by the insurers who have to-date made a payment on account of 96% of the insured sum, which we estimate to be less than US$200m. However, as investigations are ongoing, KSE is unable to assess the full impact of the incident.
Still no blue skies yet
Most of KSE’s core assets are chartered (Discoverer 2 is seeking a contract), and the distribution business is still providing a steady stream of earnings. The group’s performance has also improved in terms of narrowing its net loss but we are still unsure when we can see a return to profitability. Meanwhile, business restructuring in the distribution segment is still ongoing, which will be a gradual process. Based on 1.5x FY12F NTA, we maintain our fair value estimate of S$0.91 and HOLD rating on the stock due to limited upside potential.
KS Energy (KSE) reported a 3.3% fall in revenue to S$492.7m and a net loss of S$78.8m in FY11 vs. a net loss of S$98.4m in FY10. Revenue was within our expectations but the net loss was greater than expected, mainly due to 1) stock provisions of S$15.3m, 2) an S$18.6m expense for a non-core capital equipment asset to bring it in line with expected realizable value, and 3) higher finance costs. The S$15.3m stock provision is an allowance for inventory obsolescence with a new inventory policy in the distribution division. As for the S$18.6m expense, we understand that it is mainly attributed to the Atlantic Rotterdam; the group’s assets undergo impairment tests at the end of each year. Excluding one-off items, we estimate core net loss of about S$40.6m for FY11.
Update on KS Endeavor
Due to the fire incident in Jan this year, KS Endeavor (50%-owned by KS Drilling) has been declared an actual total loss by the insurers who have to-date made a payment on account of 96% of the insured sum, which we estimate to be less than US$200m. However, as investigations are ongoing, KSE is unable to assess the full impact of the incident.
Still no blue skies yet
Most of KSE’s core assets are chartered (Discoverer 2 is seeking a contract), and the distribution business is still providing a steady stream of earnings. The group’s performance has also improved in terms of narrowing its net loss but we are still unsure when we can see a return to profitability. Meanwhile, business restructuring in the distribution segment is still ongoing, which will be a gradual process. Based on 1.5x FY12F NTA, we maintain our fair value estimate of S$0.91 and HOLD rating on the stock due to limited upside potential.
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