Highlights

• QoQ, total orderbook fell from RM1.4bn to RM1.2bn (59% from oil and gas division, 24% from renewable energy and 17% from industrial trading & services). The company has secured about RM253m job in 4Q14.

• Polared project was 60% completed with RM250m orderbook remained to be recognised. The whole project is expected to be completed in May 15. The new deepwater pipe coating facility in Louisiana is executing 2 jobs currently while another facility in Norway will be busy until May 15.

• Total ten derbook size is about RM5bn with 95% related to O&G jobs. We understand that the new contract duration is becoming shorter as clients request faster delivery which also explained difficulty in expanding orderbook size.

• Investment in associate, Petra Energy and 49% stake in Alam- JV (OSVs) will provide stable and recurring income in addition to current project based earnings. We understand that 3 out of 5 OSVs v essels are on long term charter.

• In view of the low oil price and spending cut by E&P player, we remain cautious on the orderbook replenishment rate and the current O&G ord erbook of RM700m is a concern as it can only sustain for about a year. We also expect softer margin in O&G division due to completion of high margin job from Polared and North Malay Basin.

• Potential exercise to spin off non O&G asset to unlock value might not materialize in the near term given current market sentiment. Plantation division still in gestation period and will remain red in the next few years before breakeven. This is mainly due to initial start-up cost. The company plans to plant another 7,500 hectare in 2014 -2016. We also understand the company is not ruling out any possibility of securing strategic investors to jointly develop the concession land there.

Risks

• Delay in new contract win from O&G division.
• Political risk from Congo Oil Palm Plantation.
• Execution risk.

Forecasts

• Unchanged.

Rating

HOLD

Positives

• Strong balance sheet and acquisition record.

Negatives

• Delay in new contracts win from O&G divis ion.
• Capex burden developing Congo oil palm.

Valuation

Maintain HOLD call with unchanged TP of RM1. 39 based on unchanged 9x FY16 P/E.

Source: Hong Leong Investment Bank Research - 20 Mar 2015