BH Global's diversification efforts paying off

AS the shipping industry adopts new measures to clean up its environmentally harmful practices, local offshore and marine group BH Global Corporation is reaping the fruits of its efforts to diversify into new areas including sustainability.

For FY2019 ended December, the company reported a 22 per cent increase in revenue to S$49.4 million. The higher revenue, in combination with tightly controlled costs and fewer provisions and impairments, allowed it to report a net profit of S$1.7 million. This is BH Global's first profit since FY2013.

The 57-year-old company has operated as an electrical and technical equipment supplier to the offshore and marine industry for most of its history, but was spurred to broaden its scope following severe downturns such as the 2008 shipbuilding crisis and 2015 oil crisis. Its other businesses now include environmentally friendly LED lighting, infrared thermal sensing technology, cybersecurity, retrofitting vessels with glass-reinforced epoxy (GRE) pipes and designing a plug-in hybrid electric propulsion system for fast-launch vessels.

"Marine is a very polluted and very old industry. It doesn't adopt a lot of new, green initiatives, so it has been under a lot of pressure (to do better)," said Vincent Lim, chief executive of the Singapore Exchange (SGX) mainboard-listed group.

With the International Maritime Organisation's new requirement in 2018 for all vessels to use fuel with a sulphur content of no more than 0.5 per cent by 2020, the industry is moving in the right direction at last.

BH Global is ready to do its part. "We have set our direction towards electrification, environmental and digitalisation, because we are looking at something very long-haul and sustainable," Mr Lim said.

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The GRE pipes that BH Global supplies and retrofits have been in high demand as shipowners comply with the new requirements. One approved method for compliance involves modifying engine systems to reduce emissions to a level that is similar to using fuel with a lower sulphur content. This can be accomplished by installing exhaust gas cleaning "scrubber" systems, which require corrosion-resistant GRE pipes rather than traditional carbon steel ones.

"You might think that Singapore is a very small market, but we have more than 2,000 small vessels in Singapore waters. Every day, we are producing 6,000 tonnes of greenhouse gases," Mr Lim said. Singapore also receives ships from all over the world, and BH Global has been servicing many vessels turned away from Chinese ports in recent months.

Going electric

BH Global's next big project is the hybrid electric propulsion system, which Mr Lim says will be the first of its kind in Singapore. He envisions a day when Singapore's ferry terminals will not smell of exhaust fumes, as the hybrid system would allow for ships to run on batteries when the vessels are idling at port terminals.

In February, BH Global signed a memorandum of understanding with four industry players to jointly develop the plug-in hybrid electric propulsion fast launch vessel. One of those partners is Penguin Shipyard International, an aluminium boat builder that is listed on the SGX's mainboard.

BH Global also set up a test lab to develop, test and certify the hybrid propulsion system.

Said chief operating officer Patrick Lim, who is also Mr Lim's younger brother: "We are working closely with certification agency Bureau Veritas Marine (Singapore) to jointly review, develop and endorse the test facilities and procedures, and eventually certify the system when it is completed, with factory acceptance test at our test lab and sea trials with Penguin Shipyard."

The vessel equipped with the hybrid system is targeted to launch soon, with a sea trial anticipated for June 2020.

New ventures, customers

BH Global's diversification has drawn new customers. Solutions from its green LED lighting division are not just used by companies seeking to be compliant with stringent marine and offshore standards, but have also been used by lighting industry leaders Philips and Osram in projects such as the Canton Tower in Guangzhou and the Shanghai Tower. To continue growing the business, BH Global is developing smart control and monitoring systems to serve factories looking to reduce their energy usage.

BH Global's diversification has extended into the fields of cybersecurity and infrared thermal sensing technology, through its majority-owned subsidiaries Athena Dynamics and Omnisense Systems. Athena counts government agencies among the clients using its solutions for critical infrastructure protection and business systems security.

Omnisense is known for its fever screening systems, which have been in high demand during the current novel coronavirus pandemic. It has also developed night vision surveillance systems used by private yacht owners, commercial ship owners and law enforcement. It set up an office in Florida earlier this year, which will enable it to serve the US market directly.

One of the group's biggest challenges is maintaining a healthy cash flow, since it works with most of its customers on credit terms.

For FY2019, BH Global reported positive cash flow of S$939,000 from operating activities - a reversal from a negative cash flow of S$1.1 million in FY2018. The company did not record any net provisions for FY2019. It did, however, record a sharp jump in receivables - to S$4.3 million from S$189,000 - as well as a significant increase in payables - to S$8.8 million from negative S$657,000.

The elder Mr Lim said that despite diversifying into more fields, BH Global is still viewed primarily as an offshore and marine player. This poses difficulties when it tries to obtain financing from banks.

"They are very stringent on credit control for those in marine and offshore, because I think they were burned (in the past) and suffered huge losses," he said.

"It can't be helped, so we have to use our funding wisely." He added that the group is open to bringing in strategic investors, which would provide additional funding to help the group move faster in its new businesses.

Another challenge lies in employing sufficient talent, as local engineers are in short supply. To overcome this, the group has set up research and development (R&D) teams overseas, such as in Taiwan, where manpower is more plentiful and affordable. It maintains smaller R&D teams in Singapore that focus more on testing and calibrating the products.

For now, the original electrical and technical supply business still brings in the majority of BH Global's revenue. In FY2019, supply chain management accounted for 79 per cent of revenue. Security and engineering accounted for 8 per cent and 13 per cent, respectively.

Mr Lim hopes to see the other businesses overtake the supply arm in terms of percentage contribution in the next two to three years, even as the supply chain business continues to grow.

The group is confident that its overall revenue will continue the upward trend shown over the past three years despite recent events impacting the global economy. Mr Lim noted that the virus outbreak and US-China trade tensions have negatively affected the LED lighting arm, but they have boosted business for the thermal scanner and GRE pipe retrofitting divisions.

Possible spin-offs

BH Global does not rule out spinning off some of its subsidiaries through public listings or buyouts in future. Mr Lim said the group would like to use some of the funds raised from such a spin-off to invest in local small and mid-sized enterprises (SMEs) that have promising ideas or products but hesitate to apply for government funding for a number of reasons. These might include the red tape that could delay their time to market and concerns over intellectual property security.

"I strongly suggest that another channel should be set up to look at these SMEs and their business prospects, to give them some funding first and do the evaluation along the way," he said, adding that the initial amount could be small - perhaps 10 to 20 per cent of the project costs - and increased later on if the company delivers on its promises.

"If there is no such channel created by the government, we are willing to take it up, because we want to support local startups and enterprises."

Shares of BH Global last traded at eight cents on March 13. The company has a market capitalisation of S$24 million. It is currently on the SGX's watch-list of companies that have recorded pre-tax losses for three consecutive years, have a market capitalisation of less than S$40 million and have a trading price of less than 20 cents.