Heatec JieTong: Riding the recovery of O&G with Heatec!

Introduction

Heatec JieTong is a leading provider of piping and heat exchanger services for the marine and oil & gas industries. Their core business activities are in the provision of piping services and heat exchanger servicing and fabrication.

Financials

FY2016 saw Heatec's Revenue declined 9.5% from S$33 million to $30 million.
However with cost cutting measures, Heatec achieved a profitability of S$810k.

With the low oil prices in 2015 - 2016, business has slowed down for Heatec.

Heatec has a non-current liabilities of S$2.6 million. This is a healthy sign as their cash of S$3 million exceeds their debt. They have no liquidity issues. This allows Heatec to rough through times with low oil prices and rides the recovery when market picks up.

NTA stands at S$0.1977 vs a share price of $0.065 at 26th April 2017, tradingat 0.32x book value.

Others

1) New CEO, Mr Soon Jeffery

Mr Soon Jeffrey is our Chief Executive Officer and Executive Director, and is the son of Mr Johnny Soon, a substantial Shareholder of the Company. Mr Soon was appointed to our Board on 1 January 2016. He oversees the Group’s day-to-day operations and determines the Group’s strategic direction for business growth. Mr Soon joined Heatec in May 2005 as a Project Engineer. He has held the position as Group Sales & Business Development Director before assuming his current appointment. Mr Soon has a Master’s degree in Business and Administration from Singapore Management University and a Degree of Bachelor of Engineering (Honours) (Mechanical and Production Engineering) from Nanyang Technology University.

My view: Since Mr Soon has been with the company for the past 11 years, he should be familiar with the operations of the company and identify the strengths of the company and leverage on them. When tendering projects, with his knowledge in the industry, projects should be profitable. This marks a good start for Heatec.

Mr Soon was given 1.8 million share options convertable at $0.085 within 10 years from 18th April 2016. This definitely gave Mr Soon some booster to grow the company.

2) Mysterious sell down in 2011 & 2016

In 2011 Aug, there was a sell down from 30cts to 10cts. Shortly after, there is no volume. With a weekly average volume of more than 2 million shares changing hands, the average volume decreased to less than 500k a week. There was no announcement of change of ownership.

In 2016 April, there was a sell down from 7.5cts to below 3 cts. Again, there was no announcement of change in ownership. Except Mr Soon purchased 300k shares at $8540.90 ( or 2.84cts average ) and Mr Ong purchased 1 million shares at $26.5k ( or 2.65 cts average ).

My view: it seems that someone is cutting losses on this company. All the buyers from the market seems concentrated on a few shareholders. Since 2012, the number of shareholders hovers around 250s, with 262 shareholders as of March 2017. This shows that shareholders are displaying confidence in Heatec.

3) Dividend

Has proposed a dividend of $0.002 to reward shareholders in FY2016. The last time a dividend was paid is FY2014 ( $0.005 ), FY2011 ( $0.0075 ) and FY2010($0.01). 

4) Owners are making losses

I download the prospectus when Heatec was listed in July 2009 at $0.275. The owners' cost ranges from 6.62cts to 9.6cts. At this price, all are still sitting on losses. If we factor in dividend paid out of 2.45cts in 4 FYs, their cost will be 3.17cts to 6.15cts.  This simply doesn't make sense. 

Looks like Mr Soon is the new hope of this family to bring them profitability.

5) Investor Presentation

Since listing, there was no investor presentation to reach out to new investors. On 12th April 2017, there was an investor presentation slides on SGX. I view this as an initiative for Heatec to  increase shareholder base and hopefully to increase valuation of the company.

6) Increase in NTA

NTA has been increasing from 14cts since listing to 19.77cts in 2017.

Thou lumpy earnings, NTA has increased to 19.77cts. 





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