Maintain BUY on Keyfield as results exceeded expectations by 26%. Own-vessels utilisation rate came in at 99% during the quarter, which drove economies of scale and improved margins. We expect 4Q24 to be softer on back of the monsoon season. We raise current year earnings by 14% but maintain our target price at RM3.25 as we roll-forward our valuations and peg to a lower 12-months forward PE based on peer average.
 

• Above expectations. Keyfield's 9MFY24 core net profit (CNP) of RM192mil accounts for 101% of ours and street's estimate. The variance was largely due to higher utilisation rate of 99% during the quarter (vs our forecast of 90%) and higher total revenues per day. Accordingly, we raised current year's earnings by 14% to account for the same. We maintain our FV at RM3.25 despite rolling forward our valuations to CY26 due to pegging at a lower PER of 10x (vs 11x previously) as the local O&G maintenance subsector had undergone a "soft" derating following rumour of cuts to Petronas's 5-year capex. Though this remains uncertain at this juncture, the stock appears cheap as it trades at an implied PE of 7x at current price, which we believe is grossly unfair for a relatively resilient subsector as supply remains tight (and with no end in sight!).
• Dividends galore. Keyfield announced a third interim dividend per share (DPS) of 4 sen, bringing YTD to 8 sen. This implies a payout of 35% which exceeds its IPO guidance of 20%. With a clean balance sheet and strong cashflows, we think the group can maintain current payout levels. Our analysis shows that at current price, the group is likely to deliver dividend yields of 4-5% throughout our forecast period.
• New financing to present expansion opportunities. The group intends to raise a Sukuk Wakalah Programme of up to RM1bil. We believe this will give management ample firepower for fleet expansion opportunities in the medium term relative to its peers who will be more focused on fleet renewal. In our observation, Keyfield is the first player to pursue this route which we see reflects the challenging financing environment for small to mid-scale O&G maintenance contractors. We think the group is likely to garner financing rates of 5-6% given its AA3 stable outlook rating by RAM which is commendable given the sector. 

Source: AmInvest Research - 15 Nov 2024