Investment Highlights

• We initiate coverage on Keyfield International (KEYFIELD) with BUY recommendation at a fair value (FV) of RM3.25/share, pegged to FY25F P/E of 11x - broadly at par to local offshore support vessel (OSV) peers of 10.5x. Our FV implies a neutral 3-star ESG rating based on our in-house methodology.

• Keyfield is a pure-play OSV contractor involved in the charter of: (i) accommodation work boats/barges (AWB), (ii) passenger support vessels (PSV), and (iii) anchor handling tug ships (AHTS). The group has a fleet size of 13 vessels and operates solely in Malaysian waters.

• The group's outstanding orderbook of RM619mil (1.1x FY24F revenue) has visibility of up to FY26F with RM338mil expected to be recognised in 2HFY24.

• Order book visibility is underpinned by a tight capacity environment for OSVs over the medium term, despite downside risks to Petronas capex, as supply-side issues persist from limited financing availability amid a renewed focus towards fleet renewals due to a looming vessel ageing cliff.

• Premised on this, we expect daily charter rate (DCR) trajectory to remain steady, reaching a peak by FY25F as the pace of offshore activities moderate after addressing backlog activities. Coupled with the addition of 3 vessels into its own-vessel fleet, we believe the group will deliver a robust 3-year (FY23-FY26F) earnings CAGR of 36%.

• For reference, our forecasts are mainly based on the following assumptions:
  
  a. The delivery of Keyfield Itqan by 4QFY24 and a newbuild AWB with DP2 specifications in 1QFY26,
  
  b. Blended utilisation rate of 90%, and
  
  c. Blended DCR rate of RM89k to RM95k for own vessels.

• We see Keyfield as the prime proxy to the OSV sector with a favourable mix of AWBs and AHT/AHTS, supported by an established presence and track record with key client Petronas and other Petroleum Arrangement Contractors (PAC). We see the group continue benefiting from the current tight supply market environment.

• Though the group's share price has seen a significant run-up of 145% YTD, we believe there is further upside as it currently trades at a 1-year forward PE of 7.8x, which translates to a compelling 29% discount to peer average. 

Source: AmInvest Research - 20 Sep 2024