Highlights

• Following are the salient points from analyst briefing yesterday.

• QoQ, 1QFY16 oilfield service revenue fell by 13% due to lower rig counts in Nigeria, Myanmar and Indonesia. Cont ribution from Malaysia has dropped to 17% as rig counts remained unchanged at 5 rigs as compare to previous quarter.

• QoQ, marine segment fell into red mainly due to two accommodation work barges were offhire despite positive contribution from coal transport business. Cost optimization effort continued to prevail, with opex lowered by 29% QoQ.

• Over 95% of SES’s revenue is in US dollar while 30 -40% cost is denominated in local currency. Hence, strengthening US dollar coupled with declining chemical cost should help to enhance margin going forward.

• In term of market, SES sees strong demand from Middle East, Russia and Argentina. This will help to cushion the slowdown in activity in Malaysia and Nigeria.

• Balance sheet remains solid with net gearing at 0.2x and Debt/EBITDA ratio less than 2x. Given its strong cash flow generation with EBITDA per annum of circa RM200m, we do not rule out any possibility SES to start pay out dividend. If assume 50% payout ratio (circa RM40m dividend payout), we can expect a potential dividend yield of 7.5% based on current share price.

• On its Ophir marginal field, 1st oil target remain unchanged at middle of 2016. We believe Ophir marginal field will still proceed and we have assumed 6 months contribution in FY03/17.

• Orderbook remains sizeable at RM4bn, we expect progressive revenue recognition from orderbook to slow down as oil companies are reducing capex and drilling campaigns.

Forecasts

• Unchanged.

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 of RM0.26 based on unchanged 8x CY16 P/E.

Source: Hong Leong Investment Bank Research - 27 Aug 2015