Results /Briefing

Below: 1H13 PATAMI increased 22% yoy to RM222m, making up 38% and 42% of HLIB and consensus full-year estimates, respectively.

Deviations

We have factored in revenue contribution from new FPSO win in FY13 previously. Expect the earnings to only filter through in FY14 given the delay of project win.

Dividends

None.

Highlights

2Q13 revenue increased 25% yoy due to higher FPSO client variation order, stronger USD against Ringgit, revenue from FPSI candidate vessel, a larger OSV fleet and higher contribution from T&I – LukOil contract.

In the OSV segment, utilisation has improved from 83% in 1Q13 to 87% in 2Q13. The company just took delivery of the first four PSVs, with the rest to be delivered by 3Q and 4Q 13. The company plans to grow current OSV fleet from 40+ to 80+ vessels in 5 years.

Year to date, the progress for FPSO contract award was slow, only 6 contracts awarded so far. The company is bidding for 12 projects and a few of the result of FPSO tenders are likely to be announced soon. The company is eyeing Kraken (North Sea, to announce in Sep 13), Madura (Indonesia) and several projects in Africa.

Recently, the company has proposed multi-currency euro medium-term note (EMTN) programme worth US$1.5bn to raised fund for its expansion plan. This suggests confidence in securing one of these tenders. Balance sheet remains relatively strong with gearing ratio at 0.8x, still provides room for FPSO expansion.

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

We still expect some contract win but likely by 4Q13 with revenue contribution only commencing in FY14. Hence, our PATAMI forecasts cut by 20%, 12% and 12.5% to RM467m, RM629m and RM713m respectively to conservatively reflect no contribution from any FPSO win in FY13 and only assume 1-mid size FPSO (~US$1bn capex) or 2 smaller FPSO wins in FY14.

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 a lower TP of RM4.30 (as a consequent of our lowered earnings forecasts) based on unchanged 20x FY14 EPS of 21.5 sen/share.

Source:Hong Leong Investment Bank Research - 21 Aug 2013