T7 Global (T7) 1H23 profits almost doubled to RM10.7mn mainly driven by ongoing 10-well abandonment activities at M3 oilfield. Overall, it came within our expectation despite only making up 29% of our forecast. We expect earnings to surge in 2H23 driven by new income from Bayan MOPU and revenue recognition from KLIA Baggage Handling System contract. Separately, the company is set to further expand its operation by tendering for 3 new MOPU and topside maintenance contracts. This positive development has led to strong stock price performance. As it has risen by 42% since we initiated coverage in early 2023, there is limited upside to our current TP of RM0.50. Hence, we downgrade the stock to a HOLD.

• Within expectation. 1HFY23 earnings of RM10.7mn is within our estimate despite only making up 29% of our full year forecast. This is because we have factored in earnings contribution from Bayan MOPU that will begin in 3QFY23 into our forecast.

• QoQ. Revenue rose 11% to RM104mn mainly due (i) higher revenue from on-going well abandonment activities for M3 oilfield, and (ii) recognition of claim for works done at Bayan MOPU from Petronas. This had more than offset lower revenue from offshore maintenance activities during the quarter. EBITDA was flattish at RM11.5mn while PATAMI grew by 52% to RM6.4mn mainly due to lower finance cost and tax expenses.

• YoY. Revenue and PATAMI rose 52% and 56% respectively mainly due to ongoing well abandonment activities.

• 3Q23 preview. We expect a bump-up in earnings in 3Q23 driven by new income from TSeven Elise MOPU which has achieved first gas on 11th Jul 2023. There is an upside risk in earnings from this MOPU as the company is still negotiating with Petronas on stand-by rate for delay in its start-up. Besides that, there will also be revenue recognition from construction progress of KLIA baggage handling system (BHS) contract following preparation works done in 2Q23. The company target to replace half of existing BHS by end of 2024 before the contract ends in 2025.

• Outlook. T7’s firm orderbook stands at RM2.4bn as at end 2QFY23 (1QFY23: RM2.5bn) which comprised of (i) long-term lease charter and operation and maintenance contracts of 2 MOPUs, (ii) integrated well services (IWS) for well abandonment and well workover operation, (iii) offshore platform maintenance contract and (iv) Airport BHS project. Besides that, it participates in tender exercise that is worth RM2bn involving new MOPU asset leasing and maintenance, construction and modification (MCM) contracts.

• Our call. The stock price has risen by 42.6% since our initiation report that was released early 2023. As there is limited upside to our current TP of RM0.50, we downgrade T7 to a HOLD. Key re-rating catalyst on the stock will come from (i) new MOPU contract, and (ii) secure new MCM contract.

Source: BIMB Securities Research - 25 Aug 2023