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Friday, 23 July 2010

Kreuz Holdings Limited

Kreuz and its subsidiaries (collectively, the “Group”) is principally engaged in the provision of subsea services which includes activities supporting new offshore installation and construction projects, as well as inspection, repair and maintenance (“IRM”) of existing offshore production and pipeline facilities.

The subsea services offered by the Group are mainly performed through air diving (up to depths of 165 feet), saturation diving (depths of between 60 to 1,000 feet) and remotely operated vehicles (“ROVs”). The key operating assets to be owned by the Group include two work accommodation/dive support vessels Swiber Supporter and Swiber Glorious, one 12-man saturation diving system (K-SAT 02) and six air diving systems. The Group also has a stable pool of experienced offshore skilled personnel whom it can deploy to work on offshore projects.

The Group is offering 80m New Shares at $0.27 each with 4.5m shares for the public and the rest via placement. This is basically a "PIPE" deal where a listed company "spun out" its profitable subsidiary to raise more funds for expansion. In this case, the listed company is Swiber. Revenue for FY2009 is US$56.4m and net profit is US$11.9m. Post IPO, Swiber will own aboout 63.2% of Kreuz. The offer will end on 27 July 2010 at 12pm. The EPS based on audited 2009 figures and adjusted for service agreement as well as enlarged share cap is 3.54 Singapore cents and that translate into a listing historical PER of 7.63x. The share cap based on the IPO price will be S$136.89m and this means it is one of the "bigger' Catalist listed company. I guess Kreuz headed for Catalist is because it doesnt have the 3 year track record and the Catalist allows it to raise funds quickly.

I am not sure why but it seemed that new investors are getting in at 27 cents while the original shareholders have paid between 31.92c to 52.90c per share. Quite unusual to see that. Public will hold around 15.8% of the company. The order book as of the prospectus was approximately US$ 133.2m. The order will be completed between 5 to 60 months.

Business wise, i think the company is well positioned and the sector is attractive but may be overly dependent on Swiber as well as too "concentrated" on the "sub-sea" segment of the oil & gas industry. Overall, i like this company and could be a 'gem' in the making if they can get their business strategies right.

The IPO is fairly priced with possibly upside potential as Ezra and Swiber are trading at 10-12x PE multiples. Assuming EPS is 'unchanged' for FY2010, the fair value will be between 35c to 42c. It is always good if the prospectus can give you an idea of what the FY2010 EPS is likely to be but unfortunately, we can never tell from the prospectus. These are figures which only cornerstone investors or the underwriters will know but they will only share with you 'verbally'.
The Group generally works through main contractors (including the Swiber Group) to provide services to end-customers who are major oil and gas companies such as British Gas India Pvt Ltd, Brunei Shell Petroleum Co Sdn Bhd (“Brunei Shell”), Reliance Industries Limited, Conoco Philips Inc, Alam Maritime Resources Berhad and Petroliam Nasional Berhard. The offshore projects that the Group has supported are located in India, Malaysia, Brunei, Myanmar, Indonesia and Thailand.

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