News

Scomi Energy (SES)’s Indonesian subsidiary, PT Rig Tenders Indonesia Tbk has bagged an RM22m contract (1 year +1 year option) from Coastal Energy Company in Thailand to provide an anchor handling tug supply (AHTS) vessel.

The contract is for a period of one year which commenced at the end June 2013, with an optional one-year extension. Under the contract, PT Rig Tenders will be providing anchor handling, towing and supply run for the customer’s offshore installation.

The award is expected to have a positive impact from FY03/14 onwards.

Comment

We are neutral on the award, as we have already factored in the contract win for the OSV segment in our forecast.

The contract win translates to RM11m per annum or charter rate of US$2 BHP/day in line with our assumptions. The total orderbook for all divisions has increased to RM5.1bn. The AHTS was working with Petronas in the previous contract which expired in May13.

This contract win reinforce our view that the management will focus on the OSV segment which is synergistic to the drilling services business. The company intends to acquire 3 AHTS (BHP: 5-6k) and 1 accommodation barge.

In the long run, we still like the company as it is one of the top beneficiaries in the drilling sector given the huge prospect from drilling fluid (DF) and drilling waste management business (DWM). We also like Perisai (BUY) and SapuraKencana (BUY) who are likewise proxies to the boon in drilling related activities.

Scomi Group (Not Rated, Fair Value:RM0.54) controls 66% stake in SES (Hold) and 72% stake in Scomi Engineering (Not Rated). Scomi Group is trading at a 47% discount to our simple sum-of part (SOP) estimate of RM0.77. Hence, Scomi Group provides investors a cheaper proxy to SES currently.

Forecasts

Largely Unchanged.

Catalysts

Potential to secure RM400m worth of contracts on top of its already huge orderbook of RM5bn.

Contract win in DWM business given the potential addressable market size of US$2.1bn.

Risks

Global recession hitting O&G price; Technology advancement; Relaxing of drilling waste management regulations.

Valuation

We maintain HOLD with TP unchanged at RM0.90 based on 16x FY03/15 EPS of 5.6 sen/share.

Source: Hong Leong Investment Bank Research - 22 Jul 2013