News

Scomi Oiltools Sdn Bhd, the oilfield services unit of Scomi Energy (SES), has partnered with Handal Resources to supply modular workover rig, offshore pedestal cranes and related services in Africa and Middle East.

The parties would enter into an agreement to formalize working arrangements within the next six months.

Comments

We are positive on the collaboration as this would help to extend SES product range in countries where SES was present. The countries include Nigeria, Congo and Middle East (such as Egypt, Oman, Saudi Arabia and the United Arab Emirates). The collaboration is mutual beneficial as this will also help Handal Resources to penetrate the Africa and Middle East markets by leveraging on SES’ customer base.

The company is also involved in the bidding for the 3rd round of RSC. We gather from management that the prospect look promising. We conservatively do not include the potential award in our forecasts. A marginal field win will raise SES’s earnings by 23% based on our estimates.

DWM will be the main booster for long term growth as legislation is trending towards zero discharge as adopted in Caspian and North Sea. We understand that the company is in the vanguard of the development of Microwave technology for the treatment of oil contaminated drill cuttings. The commercialization of this product in 2014 might be the game changer and new growth driver for the company.

SES is trading at 13x CY15 P/E versus UMW Oil and Gas at 21x CY 15 P/E. We expect high UMW O&G valuation driving up the P/E multiple of drilling related stocks such as SES.

Forecasts

Unchanged.

• Potential to secure RM400m worth of contracts on top of its already huge orderbook of RM5.2bn.
• Contract win in DWM business given the potential addressable market size of US$2.1bn.
• A marginal field contract win.

Risks 

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

Valuations

We maintained our BUY call with an unchanged TP of RM1.02 based on unchanged 16x CY15 EPS of 6.4sen/share.