News

• Press reported Scomi Energy won RM300m oilfield contracts in the last 3 months to provide drilling fluid and drilling waste management projects in Australia, Pakistan, India and West Africa.

• A week before, its marine business also secured a RM175m job from Tenaga Nasional to transport about 1.2m metric tonnes of coal per annum for a period of 2 years. Financial Impact

• Latest orderbook stand at RM5bn (circa 3.5x FY03/14 revenue).

• This will be part of and in line with our assumpt ion on orderbook replenishment. We have factored in RM1.2bn contract win in FY 03/16 for drilling fluid and waste management division (YTD win is circa RM300m).

Pros/Cons

• We are positive on the contract awards as this will help to replenish its contract backlog amid sluggish oil price.

• However, we are cautious on the near term outlook as we expect oil price to continue to remained weak for next 6 months before seeing price rebound in 2H15 given the oversupply issue will only adjusted if there is any reducti on from US shale’s production. Marginal oilfield project is also not viable at current oil price (we have not factored in any new RSC win in our earnings).

• We understand that national oil companies (NOCs) comprise around 65% of SES’ revenue. NOCs have traditionally been able to better withstand the impact of declining oil price with long term capex plan. Coupled with RM5bn orderbook, this will help to cushion SES earning amidst declining oil price environment.

• In the long run, we believe there are still plenty of room for growth for the company through: i) inc reasing market share regionally with new product offering; ii) commercialise graphene nanofluids and microwave treatment products; and iii) potential securing integrated project management (IPM) contracts.

Forecasts

• Maintain forecast pending earnings review. Catalysts

• Contract win in DWM business given the potential addressable market size of US$2.1bn.

• IPM contracts win.

Risks

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

Valuation

We maintained our HOLD call with TP RM 0.73 under review.

Source: Hong Leong Investment Bank Research - 16 Jan 2015