• KS Energy and PT Pertamina Drilling Services Indonesia (?PDSI?) to set up a new joint venture company to own and operate drilling rigs in Indonesia
• KS Energy and PDSI currently jointly operate two high specification land rigs for a major oil company under a contract worth approximately US$98million
• KS Energy and PDSI currently jointly operate an offshore jack-up rig in the West Madura oilfield under a contract worth US$87.6 million
• The new joint venture company intends to take over the contracts held by the existing joint operations and tender for new contracts in Indonesia

By Low Pei Han 

KS Energy (KSE) reported a 29.4% YoY rise in revenue to S$196.2m and a net profit of S$1.6m in 2Q13 vs. S$0.7m in 2Q12, such that 1H13 revenue and net profit accounted for 54% and 42% of our full year estimates, respectively. Gross profit margin was lower at 22.8% in 2Q13 compared to 27.5% in 2Q12, as the distribution division had executed more larger-scale projects that had comparatively lower margins. Looking ahead, management believes that the distribution business will continue to be an important contributor the group?s overall performance this year. For next year, more jack-up rigs should join the fleet. We are positive on KSE?s strategy to focus on anchoring its business in Indonesia and other parts of SE Asia, from where it can continue to grow to the rest of Asia. However, the group remains in a mode of recovery and time will be needed for more significant leaps in earnings. Maintain HOLD with S$0.50 fair value estimate.

Still recovering
KS Energy reported a 29.4% YoY rise in revenue to S$196.2m and a net profit of S$1.6m in 2Q13 vs. S$0.7m in 2Q12, such that 1H13 revenue and net profit accounted for 54% and 42% of our full year estimates, respectively. Gross profit margin was lower at 22.8% in 2Q13 compared to 27.5% in 2Q12 and 23.3% in 1Q13, and this is because the distribution division had executed more larger-scale projects that had comparatively lower margins.

Update on assets
After the disposal of KS Titan 2 in 1Q13, KSE currently has three offshore jack-up rigs, seven land rigs and four workover rigs. In addition, it has two jack-ups under construction at Cosco and another jack-up rig under construction (announced 4 Jun 2013, delivery 1Q14). Work for the Atlantic Rotterdam will continue till end Sep or early Oct this year.

Distribution remains the mainstay
Looking ahead, management believes that the distribution business will continue to be an important contributor the group?s overall performance this year. Indeed, besides undertaking maintenance, repair and operations (MRO) work, the group is executing projects which are larger in scale. This division contributed to 78.7% of total revenue in 1H13. For next year, drilling should contribute more to the group?s earnings as more jack-up rigs join the fleet. No charter contracts have been announced for these assets yet.

Maintain HOLD
We are positive on KSE?s strategy to focus on anchoring its business in Indonesia and other parts of SE Asia, from where it can continue to grow to the rest of Asia. However, the group remains in a mode of recovery and time will be needed for more significant leaps in earnings.
Maintain  HOLD  with S$0.50 fair value estimate, based on 0.85x FY13/14F NTA.    ...last: $0.465...