Results /Briefing

Below Expectation: FY13 PATAMI increased 12% yoy to RM431m, making up 92% and 87% of HLIB and consensus full-year estimates, respectively.

Deviations

Mainly due to lower margin from OSV (caused by lower utilisation on certain old vessels due to change of requirement from Petronas) and T&I business.

Dividends

Declared 3.25 sen per share.

Highlights

FY13 revenue increased 25% yoy (in line with our forecast) due to higher FPSO client variation orders, revenue from FPSO candidate vessels and start-up of Kraken FPSO contract. However, EBIT margin fell from 33% to 26% mainly due to lower margin from OSV and T&I business. OSV margin has fallen from 28% in 4QFY12 to 7% in 4QFY13 mainly due to change of requirement from Petronas which caused lower utilisation on certain old vessels.

The company registered loss from its jointly controlled entities (C7 FPSO) due to one off non-recurring charges arising from change in accounting method from operating leasing to finance leasing.

The company also announced that it has secured 2 contracts with Oceanic Consultants Nigeria for the continued deployment of the FPSO Armada Perdana at the Oyo Field Development located offshore of Nigeria. The contracts are worth US$381m for an initial period of 7 year with further aggregated value of US$108m if the extension options (2 additional periods of 12 months each) are fully exercised. We already factored this contract in our earnings forecasts as it is just a contract renewal due to change of operator in the field.

Overall, the company is bidding for 10 projects globally (expect 12-16 FPSO awards in a year). The progress of the bidding on Madura and Angola projects remain on track. To note, we see upside risk to our forecasts from FY14 onwards if the company manages to secure Madura (US$450m capex) and Angola (US$1bn capex) projects.

FSRU and FLNG segments provide new growth opportunity going forward. The company will focus on small-scale FSRU and has short listed bidder for several FSRU projects in 2013. We have not captured any contribution from FSRU projects in our earning assumptions. This will be the wildcard for the company.

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

Unchanged pending more guidance on the margin trend in OSV and T&I business.

Valuation

We continue to like the company’s prudent approach in tendering projects and outstanding execution capability. Hence, we maintain our BUY call with an unchanged TP of RM4.87 based on unchanged 20x FY15 EPS of 24 sen/share.

Source: Hong Leong Investment Bank Research - 20 Feb 2014