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Ifrit2020 - fundamental analysis

Author: Chong Jiunn Hau   |   Latest post: Tue, 27 Jun 2017, 01:18 AM

 

Gulf crisis - What is the real impact on SERBADK? - Ifrit2020 (Updated 26/6/17)

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Recently there is a diplomatic crisis in Qatar which created unstable politics particularly among GCC members which consist of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Well, I am not here to explain what nor how does it happen as it can be easily source from the internet. Let's look at the angle particularly on oil and gas industry in Qatar during the diplomatic crisis and how does it impact the business potential of SERBADK

Qatar Oil and Gas Industry - Sourced from Internet news and articals

As we all know, Qatar is a member of the OPEC and is a significant oil producer, the government has devoted more resources to the development of natural gas in the contemporary era, particularly for export as liquefied natural gas (LNG). Qatar is the largest exporter of LNG in the world. Together, revenues from the oil and natural-gas sectors amount to 60% of the country's GDP. Domestically, the vast majority of Qatar's total energy consumption comes from natural gas (79%), whilst the balance is supplied by oil.

Qatar exported 79.62 million tons of LNG last year, or 30% of global supply, according to the International Group of Liquefied Natural Gas Importers. State-run Qatar Petroleum, the world’s fourth-largest oil and natural gas producer, has only five Middle Eastern customers for its gas — Kuwait, Oman, Jordan, the UAE and Egypt. LNG exports to these countries comprised about 10% of Qatar’s total shipments in 2016. Apart from Gulf countries, Qatar’s biggest clients are Japan, India, South Korea (depend on Qatari natural gas to keep the lights on. These parties all share a common interest in resolving the intra-GCC spat, and in keeping the gas flowing) and British (about 1/3 gas supplies come from Qatar), according to energy research firm Wood Mackenzie.

Despite the diplomatic crisis, Qatar, the world’s biggest seller of liquefied natural gas, can still access shipping routes to deliver oil and gas to buyers after Saudi Arabia and other neighbouring states barred the emirate from exporting through their territorial waters. Though they could be a target if the crisis escalates.

Aside from sending LNG and oil by ship, Qatar exports natural gas through a pipeline operated by Dolphin Energy, which is owned by Abu Dhabi’s Mubadala Development Co., Total SA and Occidental Petroleum Corp. The pipeline supplies the UAE and Oman and can send 3.2 billion cubic feet per day of gas, though it only uses about two-thirds of that capacity. About two billion cubic feet of gas per day was sold to UAE despite the current crisis, it meets about 30% of the UAE's energy needs. Without gas from Qatar, electricity plants in Dubai and the UAE capital of Abu Dhabi wouldn’t be able to power air conditioners to beat the brutal heat of summer, nor run its vital desalination plants producing water. It would take time to import that gas from another source and probaly with a significant higher cost.

As conclusion of the oil and gas industry of Qatar: It is still and probaly will continue its production and export without distrub during the crisis as majority of the European, Asian, and even some of the Gulf countries heavily depend on it.

SERBADK

I am not going to highlight how fundamentally sound this company is, please refer to its IPO prospectus and fundamental analysis articles in the internet. Just one word to describe this company: SOLID.

It was on a tremendous bullish momentum since its IPO launched on 8th Feb and reached historical high at RM2.25 on 5th June. When the diplomatic crisis announced, it dropped significantly on 6th June and closed at RM 2.07 (-8%) with high volume which indicated panic sell on that day. As of today, 19th June, it closed at RM 1.90 (-15.5%). It may goes down further to the next support level at RM 1.79 (-20%) in a few days time if panic sell and cash out activities continue. Let's deep dive into the business performance.

According to its latest QR, Qatar contributed 21.2% of the total revenue:

In a worst case scenario, assuming if the group’s Qatar operations were compromised, it would expect financial year 2018 (FY18F) performance to see some effect on top line by about 13% and earnings at about 14%. FY18 EPS is at 23.8 by PublicInvest Research dated 22nd May. If SERBADK were affected its earning by -14%, FY18 adjusted EPS would be at 20.47 and with the P/E of 11, TP is at RM 2.25!

              FY18
EPS 23.80
adjusted EPS 20.47
P/E 11
Target price  $       2.25

Assuming the operation in Qatar seized, RM1.90 is still undervalue for SERBADK. Even it were to happen, I believe Qatar current customers need to find other suppliers for oil and gas (especially gas) from other countries which will generate more revenue for SERBADK (Malaysia is the 3rd largest LNG export in the world, hehehe). Those countries may need to increase their production capacity to overcome the supply shortage of 30% from Qatar. Higher production capacity, higher frequence of maintainance, no rocket science.

From the understanding of Qatar's oil and gas industry mentioned above, we know that this is unlikely to happen. But it is naive to say that it won't affect SERBADK revenue at all, so let's take the middle, Qatar business may affect 10-30% and FY18 EPS reduced by 5%.

              FY18
EPS 23.80
adjusted EPS 22.61
P/E 11
Target price  $       2.49

Potential growth of 30%!

The best senario? As described by the CEO, the company was gearing up for opportunities to possibly provide its support to gas producers in Qatar, due to the vacuum of contractors from these respective countries pulling out of the nation. You may calculate the TP yourselves!


Update 26/6/18

Below is the competitors I found in Bursa Stock Market which providing MRO and IRM services in Malaysia, Middle East and other countries (except Deleum Bhd but included due to revenue >500m)

Note: TNB Repair and Maintainance Sdn Bhd had revenue of RM 975m in 2015 but not listed in Bursa

Just by looking at the numbers, immediately you can tell SERBADK is currently way undervalue compare to its peers. Its 3 quarters' revenue already out performed its competitors with lowest P/E, highest EY, profit margin and ROE.


So, are those investors cash out by rumors or by facts? If by rumors, they are cashing out by emotion (fear); if by facts, they are cashing out by business potential.Although the end results are the same: cash out, but it makes a big difference on who (seller or buyer) is the "water fish"!

I definately hope the bearish momentum can continue. It is beneficial to the medium and long term fundamental investors like you and me.

*Disclaimer: The information above is only for sharing purpose, it does not contain buy or sell call. Trade at your own risk.

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Labels: SERBADK

Related Stocks

Chart Stock Name Last Change Volume 
SERBADK 2.69 +0.02 (0.75%) 15,300 

  VenFx likes this.
 
probability Thanks Chong...a lot of powerful information there.
19/06/2017 23:26
Chong Jiunn Hau you are welcome probability. those are the homework I had done so far. Hope you will find it useful.
;)
19/06/2017 23:32
wonderlust33e tp 1.50 8x PER. Not worth 11x.
19/06/2017 23:32
probability recurring income + potential growth deserve PE 15 minimum...
19/06/2017 23:43
Chong Jiunn Hau most of the research reports use 11x, some use 12x, I choose the lowest. Well the focus of this blog is to look at the risk to SERBADK, optimum FY18F P/E could be another topic to discuss. Of course you have the right to decide how much P/E is worth for this stock for yourself.
19/06/2017 23:46
probability simple logic:

(1) Only reason it dropped from super bullishness at 2.25 level was ..qatar

(2) The Operation & Maintenance contract is for their O&G operation which is the life-line of Qatar and the regional countries including UAE...

(3) Remember it all happened just because they supported another group outside which is perceived as terrorist by UAE and Saudi....

do u think Qatar will suicide for other terrorist group?
and do u think they still cant support them secretly while on the face agreeing to demands or so called passively as 'list of grievances' by Saudi....which they have yet to come up?

Come on...use common sense
19/06/2017 23:49
comebackisreal Taken profit based on TA. As the director alrd explained the Qatar case won't affect the company, in fact it would create more Biz opportunity for the company.
However, the price drop further , I think something might be happening.. .
25/06/2017 13:33
VenFx SERBADK has always in my radar.
tq Chong for the very useful info .
25/06/2017 18:01
fortuneebullz i think ur radar is faulty!
25/06/2017 18:21
VenFx Haiyo , its ok to be faulty lar ...
25/06/2017 18:26


 

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