Results

Topline beat but bottomline below expectations: FY14 revenue of RM1.4bn and net profit of RM81m, making up 102% and 85% of HLIB full-year estimates.

Deviations

The shortfall in bottomline was mainly due to marine business registered EBIT loss of RM7.5m in FY14 as the lower coal prices in Indonesia has impacted volume of transport negatively.

Highlights

YoY, 4QFY14 revenue increased by 32% mainly due to strong contribution from oilfield services partly offset by weakness in marine business. Oilfield revenue surged by 36% YoY driven by ramp up of activities of the in West Africa, Myanmar and Russia.

However, PBT fell 11% YoY and 14% QoQ mainly due to marine business which fell into operating loss for 2 consecutive quarter as the lower coal prices in Indonesia has impacted volume of transport negatively. The utilisation on OSV division was lower as the existing accommodation work barge was under refurbishment.

For the oilfield division, operating margin has improved from 8.3% to 14% QoQ due to earnings catch up from some of the drilling fluid projects coupled with more streamlined operation and prudent cost management post restructuring.

To recap, SES has entered into an exclusive product formulation and marketing agreement with Graphene NanoChem (listed in UK’s AIM Exchange) to deliver a range of formulated PlatDrill series for the oilfield chemical market. We understand the nanofluid should fetch higher margin (10- 20% better than normal drilling fluid). The company has started field test with local oil major and the market size is estimated at around US$1.8bn.

DWM will be the main booster for long term growth as legislation is trending towards zero discharge as adopted in Caspian and North Sea.

The company is also involved in the bidding for one of the RSC field. We conservatively do not include the potential award in our forecasts. To note, if SES wins the RSC, our target price will be raised from RM1.02 to RM1.18.

Forecasts

Unchanged pending analyst briefing today.

Catalysts

• 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.

Valuation

We maintained our HOLD call with an unchanged TP of RM1.02 (based on unchanged 16x CY15 EPS of 6.35sen/share).

Source: Hong Leong Investment Bank Research - 2 Jun 2014