Highlights

• Following are the salient points from analyst briefing on last Friday. Oilfield revenue was flat YoY due to lower rig count and activity in Malaysia and West Africa coupled with depreciation of Ruble in Russia. Oilfield contribution from Malaysia has fallen from 30% to only 18% but expects contribution to maintain at US$15m per quarter.

• QoQ, marine segment has swung from losses to profit as a result of higher margin in Indonesia operations due to lower operating cost and lower depreciation. In addition, the delivery of new accommodation work barge has been delayed by another 6 months given difficult environment.

• Management expects oil price to stay at $50-70/bbl level for next 2 years given the pickup in shale activity and high oil inventories. In term of market, West Africa and Australia will continue to experience slow down in activity while Middle East, India and Argentina are expected to see increasing tenders. YoY, number of rigs in Middle East has increased from 407 to 410 while other major markets experienced declining rig counts.

• On its Ophir marginal field, SES expects to hit 1st oil in 2H of 2016 pending Petronas’ approval. SES and its partners are focusing on its effort on capex and opex reduction. Under new development plan, total project cost (include capex and opex) will be reduced by circa 30%. We believe Ophir marginal field will still proceed, but we conservatively assume only 6 months contribution in FY03/17 after factored in potential delay. SES also aims to reduce its opex from 13% of revenue to 10%.

• SES has secured about RM260m contract in 4QFY15 with orderbook stand at RM4bn now. SES is bidding for US$400m contracts range from drilling fluids, drilling waste management and D&P facilities jobs.

• Despite oil price 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 RM4bn, we expect progress revenue recognition from orderbook to slow down as oil companies are reducing capex and drilling campaigns.

Forecasts

• Unchanged.

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 a TP of RM0.45 based on unchanged 10x CY16 P/E.

Source: Hong Leong Investment Bank Research - 25 May 2015