We came away from a visit to KEYFIELD's Labuan operations feeling more confident in the company's operational capabilities.

In FY25, its three incoming vessels, in our view, will likely secure charters as soon as they are ready for deployment due to the tight OSV market. During the ongoing monsoon season, five vessels will undergo dry docking, ensuring they are well-prepared for what is expected to be a busy year ahead. We maintain our earnings forecasts, TP of RM3.18 and OUTPERFORM call.

Amid the backdrop of the removal of overhang from the Petronas and PETROS saga, investors are more interested in what lies ahead for KEYFIELD, and we hosted some investors to Labuan to visit two of its vessels, Keyfield Wisdom (formerly known as Blooming Wisdom) and Falcon to witness the day-to-day operations of the vessels and understand more on KEYFIELD's ability to secure more favourable daily charter rates (DCR) by understanding more about its vessel capabilities. The visit has reinforced our positive view of the group's operational standards and vessel maintenance practices.

Three new vessels to drive growth in FY25. We anticipate that KEYFIELD's earnings growth in FY25 will be primarily driven by three key vessels. Aulia, a 5,150 bhp DP2 AHTS, delivered in August 2024, will contribute fully in its maiden year in FY25. Itqan (AWB), currently undergoing retrofitting, is expected to be operational by 2QFY25.

Additionally, Gratitude, a DP2-enabled PSV, will be delivered in February 2025 and operational by June 2025. However, we have conservatively factored in earnings contributions only from Aulia and Itqan, as they are secured with term charters, while for Gratitude, it is pending charter announcements.

Busy dry-docking schedule in 2025. From December 2024 to February 2025, five accommodation workboats (AWBs) - Lestari, Compassion, Amanah, Commander, and Itqan (retrofitting) - are scheduled for dry-docking, followed by Laguna Setia 2 from October to December 2025. These dry-docking activities are strategically planned during the monsoon season (typically 1Q and 4Q), minimising disruptions to operations. Given the robust demand for vessels, we expect KEYFIELD to maintain a vessel utilisation rate of 80% or higher in FY25, ensuring consistent operational efficiency.

Outlook. The growth in FY25F earnings will be mainly underpinned by Itqan and Aulia (AHTS)'s maiden contributions to the group. Overall, we maintain that DCRs will continue to trend upward in 2025 in the local OSV market, as supply remains tight while demand continues to increase.

Forecasts. Maintained.

Valuations. We maintain our TP of RM3.18 pegged to unchanged 11x FY25F PER, which is at a 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 exposure to the booming local OSV industry, (ii) its relatively young fleet age of eight years and DP2-rated vessels which are preferred by clients, and (iii) its inclusion as a panel contractor for AHTS for Petronas which could open doors for more third party AHTS charters. 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 - 21 Jan 2025