Results

Above expectations: FY13 PATAMI dropped 2% yoy to RM237m, making up 112% and 116% of HLIB and consensus full-year estimates, respectively.

Deviations

Mainly due to RM52m tax credit claims from ongoing yard optimisation programme.

Dividend

Declared 5 sen dividend per share vs HLIB estimates of 10 sen per share.

Highlights

4QFY13 revenue fell by 15% YoY as projects in hand are nearing completion and only initial revenue recognised at TLP Malikai. However, it improved 61% QoQ due to contribution from Gumusut-Kakap project. It has completed and delivered Telok B Topside, Damar Topside and Jacket and Gumusut-Kakap FPS in year 2013. FPSO Cendor is 99% completed and expected to sail away by end of March 14.

Operating margin fell from 9% in 3Q13 to 6.5% in 4Q13 due to higher cost expected for Tapis EOR and yet to recognised profit from TLP Malikai project despite overall margin improvement in marine business.

The company has recognised some of the variation orders in 2013 with major part from FPSO Cendor project. We understand that other variation orders are in ongoing negotiation with the customers. Current orderbook stood at RM2.5bn with 86% from TLP Malikai and SK316 projects. The company expects to recognise profit from Malikai in 2Q14 and SK316 in 2H14.

Yard utilisation is around 50% with more jobs to be undertaken at west yard. Going forward, the company is tendering RM4-5bn worth of contract, majority from oversea. In our assumptions, we have factored in RM2.5bn and RM3bn orderbook replenishment for FY14 and FY15 respectively. However, margin will continue to be under pressure due to intense competition.

Risks

• Problems sourcing O&G knowledge workers for growth.
• Execution risk and orderbook replenishment failure.

Forecasts

Unchanged.

Rating

HOLD

Positives – First bite of the cherry for local oil and gas projects. Room to grow yard capacity and capability.

Negatives – History of delivery delays and earnings disappointments. Difficult to source engineering and project talent.

Valuation

Maintain our HOLD rating with an unchanged TP of RM3.87 based on an unchanged multiple of 20x on FY15 EPS of 19.3sen/share.

Source:Hong Leong Investment Bank Research - 12 Feb 2014