Results/Briefing

Inline: 1Q13 PATAMI increased 16% yoy to RM110m, making up 19% and 20% of HLIB and consensus full-year estimates, respectively.

Deviations

We expect earnings to be boosted by a total of 2 FPSO win in 2013. So far this year the company has won a 49% stake in Cluster 7. Hence, we considered the results to be in line unless it is unable to announce any wins by 2H13.

Highlights

1Q13 revenue increased 46% yoy due to higher operating and maintenance revenue (O&M), additional tanker vessels held as FPSO conversion candidates, a larger OSV fleet (increased from 40 to 45) and higher contribution from T&I – LukOil contract.

Operating margin fell to 28.6% in 1Q13 from 38.2% in 1Q12 partly due the higher depreciation as a result of vessels additions in the FPSO, OSV and T&I segments.

As we mentioned in our report dated 15 May 2013, performance in the Offshore Support Vessels (OSV) and Transportation and Installation (T&I) divisions seem to be running more smoothly than last year which was plagued with one-off problems in Africa and low utilisation.

Although we concede award timing is uncertain, we continue to believe the company will secure a total of 2 mid-sized FPSO’s (one maybe a marginal field development) in FY13 and one per annum in FY 2014 and beyond. Meeting our expectations and surprising the market on the upside.

The company is also seeing demand strengthen as domestic O&G activities intensify. Current FPSO bids for Kraken (North Sea), Belud (Malaysia) and Madura (Indonesia) are still on the table as well as potential entry into Marginal fields. In addition, there are potential bids in Angola and Brazil.

Risks

• Increased competition as new players enters the market.
• Execution risk, including oil spills and their clean-up costs.
• Unusual high portion of vessels dry docking or under repair.

Forecasts

Maintained.

Rating

BUY

• Positives –
  • Excellent management and reputation.
  • Ability to ride the growing offshore global trend.
• Negatives –
  • Increased competition makes growth more complex.
  • Potential delays in securing contracts.

Valuation

• Maintain a BUY call with an unchanged TP of RM4.88 based on unchanged 20x FY14 EPS of 24.4 sen/share.

Source: Hong Leong Investment Bank Research - 22 May 2013