Results

• Inline: FY15/03 revenue increased by 10% YoY and core PBT (excluded RM13.7m of forex gain) was RM104m, making up 104% of HLIB and consensus forecast.

Deviations

• None.

Highlights

• YoY, 4QFY15 oilfield service revenue decreased slightly by 2% mainly due to lower rig counts in Malaysia and West Africa coupled with depreciation of Ruble in Russia. In term of PAT, oilfield fell by 18% YoY due to lower product margin mix and weaker earnings from high margin countries like West Africa and Russia.

• QoQ, marine segment has swung from losses to profit as a result of higher margin in Indonesia operations due to operating efficiencies. However, outlook remains challenging as lower coal prices and new tax regime imposed by Indonesia government will continue to affect volume of tonnage transported. Contract win from Tenaga to transport coal will help to mitigate the weakness from Indonesia.

• We understand that breakeven cost for marginal field is around US$65/bbl and existing RSC contractors are working to lower development cost to make sure marginal fields are still feasible. We believe Ophir marginal field will still proceed, but we conservatively assume only 6 months contribution in FY03/17 after factored in potential delay.

• Despite oil price has rebounded from below US$50 to US$65 recently, we remain cautious on the near term outlook as we believe oil price will stay depressed as high oil price will induce increasing production from US shales until demand catching up with supply. Although orderbook remain sizeable at RM5bn, we expect progress revenue recognition from orderbook to slow down as oil companies are reducing capex and drilling campaigns.

Forecasts

• FY16 and FY17 earnings reduced by 21% and 34% respectively to reflect slower orderbook recognition and delay of Ophir RSC contribution (only 6 month of contribution in FY17 versus full year previously) amidst low oil price.

Catalysts

• Contract wins in DWM business.

• 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 a TP adjusted from RM0.65 to RM0.45 based on unchanged 10x CY16 P/E post earnings downgraded.

Source: Hong Leong Investment Bank Research - 22 May 2015