Results

• 2QFY15 result was below expectation, swinging from profit to loss while bringing 1HFY15 profit to RM2.5m.

Deviations

• Decline in average vessel’s utilisation rate to below 70% (breakeven level) due to slower work orders.

Dividends

• None.

Highlights

• QoQ, 2Q15 core earnings (exclude unrealised forex loss of RM8.2m) swung from profit to loss mainly due to the decline in average utilisation from 76% to 68% arising from lower utilisation of Sovereign (workboat), Odyssey (workbarge) and others OSVs. To note, breakeven level for average vessel utilisation is at circa 70%. To recap, Dayang had earlier terminated charter contracts for both Sovereign and Odyssey in Feb 15 and Mar 15 respectively.

• Enterprise is on short term charter while pending disposal, which will lower its average fleet age to circa 5 years.

• We expect 3Q result to remain weak with utilization rate remaining below 70% as only 9 out of 17 vessels are on long term charter. Hence, we reduced our FY15 average utilization rate assumption from 72% to 65% and expect FY15 to register losses of RM4m.

• Near-term industry outlook is gloomy with WTI falling below US$40/bbl given the weak underlying fundamental due to oversupply from US Shale and Iran coupled with weakening demand from China.

Risks

• Global recession hitting O&G price;
• Business and restructuring execution failure;
• Increase in OSV supply

Forecasts

• FY15 expect to register losses of RM4m and FY16 earnings reduced by 65% after factored in lower utilisation rate of vessels (from above 80% to 72%).

Rating

HOLD

Positives

• Increasing demand on maintenance services.
• OSV supply relatively inelastic.

Negatives

• Increased competition for growth markets.

Valuation

• Despite the weak result, we maintained our HOLD call with TP of RM1.55 supported by the GO offer price.

Source: Hong Leong Investment Bank Research - 26 Aug 2015