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Author: enlistcapital   |   Latest post: Sat, 31 Jul 2021, 3:43 AM

 

A hidden oil company you do not want to miss for its potential upside!

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A oil company you do not want to miss for its potential upside!

 

We know that logistics & transportation market is extremely busy.

 

We know that maritime activities (offshore) are very active due to increased demand on shipping.

 

Logically, port operators, vessels operators, container owners would be able to benefit from it. But the market had forgotten that one industry, amongst all, should also benefit for the busy maritime activities.

 

The oil bunkering business.

 

To cut you the slack from TL;DR, oil bunkering simply means the transfer of oil from one ship to another. I’ve attached an excerpt taken from STRAITS LOGISTICS official website for your perusal, as it provides a more holistic overview on the business. But for us layman, oil bunkering can be understood as buying oil from supplier, and then provide bunkering service to onshore or offshore vessels as a service.

 

What is oil bunkering, you may ask? Generally, the term bunkering  provision of marine fuels to ships, as well as other ocean faring vessels, such as oil tankers, container vessels, cargo vessels, cruise ships and ferries, as well as vessels utilised in the upstream oil and gas industry such as offshore support vessels, submersible, and semisubmersible rigs and FPSO vessels. Bunkering can be broadly categorised into onshore bunkering and offshore bunkering, whereby marine fuel is typically pumped into vessels by refuelling vessels barges, product tankers or another ship in harbours, close to shore, or in open waters. Onshore bunkering involves the transfer of marine fuels on a shore-to-ship basis from an onshore facility, whereas offshore bunkering involves the transfer of marine fuels on a ship-to-ship basis.

Bunkering is essentially a marine logistics business, where industry growth is dependent on the volume of marine fuels distributed to end-users, which include amongst others, oil and gas vessels, marine cargo and bulk transporters, military, and navy vessels. Thus, growth in global trade and marine transportation, increased activities in the upstream oil and gas industry, and supporting government policies will positively impact the bunkering services industry, benefiting industry players that offer bunkering services.

 

So, what does this have to do with oil?

 

Essentially, everything. Generally, the oil that the oil bunkering business supplies ultimately is a product from refinery, by “breaking down” the crude oil harvested into usable grade oil. However, the IMO 2020 changed the industry, forever.

 

 

 

This is a corelation study on the relationship between VLSFO and brent crude price, as well as the VLSFO premium over it. Why does the premium matter? That is because the higher the oil price (brent has been on an uptrend), the higher the VLSFO and potentially impact the VLSFO premium.

 

Generally, VLSFO have 35.5% premium over brent oil, but sometimes it would spike up to 60.0%, and above.

 

The IMO 2020 technically banned high sulphur contain oil, and the market is left with limited option with 0.5% sulphur contain. Interestingly, this would further spike the premium over brent, but conservatively taking a +2% and +20% range, this is the price for VLSFO.

 

 

 

Next question is the million-dollar question – what company could benefit from this golden opportunity? Well, obviously STRAITS itself. But Techfast Holdings Berhad too, had joined the oil bunkering game not long ago!

 

 

 

Just to recap, TECFAST had signed a total of 3 oil bunkering / oil supply agreement, with a total value of MYR 4.2 Billion! If we refer to STRAITS’s profit margin in the sector of 2.0% to 2.5%, the 3-year contract could equate to MYR 82.0 million to MYR 105.0 million in profit after tax.

 

Based on the market cap for TECFAST of MYR 107.0 million, you tell me – if TECFAST is being undervalued for now.

 

However, it is important to add to my point that investors might be jumpy about TECFAST’s recent rights issue. I shall explain more about the rights issue on tomorrow’s analysis. But in the meantime, stay tuned for TECFAST’s latest updates!

 

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