Results

• 3QFY15 result was below expectation with core losses widening from RM3.5m to RM26m QoQ versus our full year forecast losses of RM4m.

Deviations

• Average vessel’s utilisation rate fell further from 68% to 55% QoQ due to lack of new orders.

Dividends

• None.

Highlights

• QoQ, 3Q15 core earnings (exclude forex loss of RM9.7m) remain in the red and widening from RM3.5m losses to RM26m losses. This is mainly due to further decline in average utilisation from 68% to 55% arising from lack of new work orders. To note, breakeven level for average vessel utilisation is at circa 70%.

• We expect 4Q result to remain weak and remain in the loss as average vessel utilization is still below 70%.

• Near-term industry outlook is gloomy with WTI hovering around 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

• We are widening our FY15 losses from RM4m to RM53m and adjust our FY16 earnings from RM39m profit to RM27m losses mainly due to lower utilisation rate.

Rating

• Cease Coverage, TP: RM1.55

Positives

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

Negatives

• Increased competition for growth markets.

Valuation

• Officially cease coverage on the stock following the successful MGO by Dayang.
• Our last recommendation was HOLD with a target price of RM1.55 (same as MGO price).

Source: Hong Leong Investment Bank Research - 25 Nov 2015