• Incorporated in 2012, Steel Hawk Berhad primarily involved in EPCC services andfacilities improvement or maintenance, installation and maintenance of oilfieldequipment, as well as supply of oilfield equipment.
• Going forward, we project Steel Hawk’s revenue to grow by 8.3-9.6%, reachingRM78.6m-RM94.4m for FY24-26f, while its core net profit is expected to increaseby 6.4-65.0% to RM11.9m-RM13.6m, supported by the overall expansion planscoupled with projected growth in domestic Petronas’s CapEx.
• We estimate a fair value of RM0.39, representing an upside of 160.0% against theIPO price of RM0.15 for Steel Hawk. The fair value is derived by pegging a P/E ratioof 15x to the FY25f EPS of 2.59 sen, which we believe is justified with the averageP/E ratio of 15.9x of the Bloomberg GICS Industry – Energy Equipment and Services sector.

Investment Highlights

OGSE sector, a prime beneficiary of Petronas domestic CapEx. Petronas, as a custodian of Malaysia’s petroleum resources, is a crucial driver of growth in the Oil & Gas Services and Equipment (OGSE) industry. In 2023, Petronas’ domestic Capital Expenditure (CapEx) grew by 40.86% YoY from RM18.6b to RM26.2b, underpinned by Petronas’ investments in key projects like (i) Nearshore Floating LNG, (ii) Kasawari Gas Field development, and (iii) Carbon Sequestration, coupled with a favourable high crude oil prices environment. Therefore, OGSE players stand to benefit from the increased demand services related to these projects.

Strong momentum ahead. According to IMR Report, Petronas’ domestic CapEx is projected to grow at CAGR of 1.34% to RM28.0b by FY28, driven mainly by initiatives such as (i) Facilities Improvement Plans (FIPs), (ii) decommissioning approximately 150 matured assets and reassessing disused asset, (iii) expansion of LNG bunkering and (iv) Petronas’ automotive fluid solutions for electric vehicles (EVs), as well as the recent discovery of potential hydrocarbon reserves in the Langkasuka Basin. As such, given its strong relationship with Petronas of more than 10 years, the group is wellpositioned to capitalise on this growth.

Diverse customer portfolio. Since listing on the Leap Market, the group expanded its customer base by securing 9 new customers in the FY22. As a result, the revenue contributed by Petronas to the group has decreased to 54.47%, 45.64% and 61.39% of the group’s revenue in FY22, FY23, and FPE24, respectively, indicating steady revenue growth. Moving forward, the group intends to continue its strategy by fostering collaboration and strengthening relationship with existing customers while expanding its customer base through tender activities.

Tapping into Renewable Energy (RE) industry. With over 10 years of experience serving as an Engineering, Procurement, Construction, and Commissioning (EPCC) provider in the O&G sector, Steel Hawk intends to enter the Renewable Energy (RE) industry, focusing on solar and hydroelectric energy. This new venture will provide the group with an additional income stream and reduce its reliance on the O&G segment.

Source: Mplus Research - 21 Aug 2024