KEYFIELD's 1QFY24 results beat expectations on higher charter rates and vessel utilisation. Its 1QFY24 core net profit more than quadrupled on fleet expansion, higher charter rates and utilisation. We raise our FY24-25F net profit forecasts by 15% and 42%, respectively, lift our TP by 42% to RM2.69 (from RM1.90) and maintain our OUTPERFORM call.

KEYFIELD's 1QFY24 core profit of RM30.3m exceeded expectation at 24.5% of full-year forecast, driven by higher-than-anticipated daily charter rates (DCRs) and vessel utilisation during the monsoon season. The company also declared an interim dividend per share (DPS) of RM0.01, corresponding to a payout ratio of 37%.

YoY, its 1QFY24 revenue almost doubled driven by: (i) an addition of four vessels, namely, Lestari, Blooming Wisdom, Helms 1, and IMS Aman), (ii) a 25% increase in average DCR, and (iii) higher vessel utilisation of 64.8% (vs. 47.1% a year ago). Its core profit more than quadrupled as operating cost rose much less than the charter rate.

QoQ, its topline declined by 11% due to lower vessel utilisation during the rough weather season, partially cushioned by a 12% rise in DCR. However, its core profit surged 37%, similarly, as operating cost (including staff cost) rose much less than the charter rate.

Outlook. We expect stronger quarters in 2QFY24 and 3QFY24 for KEYFIELD as vessel activity normalises post the monsoon season, with all vessels expected to operate near full capacity. The majority of its accommodation work boats (AWB) are currently engaged in medium- term charters of six to nine months. Should demand for AWBs remain robust, we project that the group could secure higher DCR for FY25 by the end of FY24. Given the tight supply of offshore support vessels (OSV) in Malaysia and increasing operational activities, we expect DCRs to continue rising in the coming months.

Forecasts. We raise our FY24-25F net profit forecasts by 15% and 42%, respectively, having lifted our average DCR assumptions to RM105,000 to RM124,000 (from RM97,000 to RM102,000).

Valuations. We upgrade our TP by 42% to RM2.69 (from RM1.90) pegged to unchanged 11x FY25F PER, which is at slight premium to 10.2x median OSV multiple due to its younger fleet and higher fleet specifications.

Investment case. We like KEYFIELD due to: (i) its presence in the booming AWB subsector on tight supply, (ii) its relatively young fleet age of eight years and DP2-rated vessels which are preferred by clients, and (iii) a strong war chest by virtue of a debt-free balance sheet. Maintain OUTPERFORM.

Risks to our call include: (i) significant decline in Brent crude prices, (ii) unexpected vessel downtime due to unplanned maintenance, and (iii) decline in oil producers’ capex planned.

Source: Kenanga Research - 28 May 2024