Results

• Slightly below expectations: 4QFY16/03 profit came in at RM6.9m, bringing 12MFY16 earnings to RM41.4m, accounting for 94.1% of our forecast.

Deviations

• The slight deviation was mainly due to widening of losses incurred for its coal and OSV segments.

Highlights

• 4QFY16 core net profit fell by 55.5% YoY due to weak performance for both Marine and Drilling business divisions. Drilling business suffered both weaker QoQ and YoY performance as a result of certain drilling plans being deferred amid low oil prices. In the quarter, Marine division also slumped in terms of revenue and profits driven by lower tonnage of coal carried and low vessel utilisation.

• Drilling activity is expected to remain muted given weak oil prices. Although orderbook remains sizeable at RM4bn, we expect progressive revenue recognition from orderbook to slow down as oil companies are reducing capex and drilling campaigns.

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

• We opine that the RSC project remains viable given that cost savings were al ready derived during the development stage when oil price plunged last year, resulting in potentially lower cost of production.

• Its Marine division weak performance is expected to continue for the remaining quarters in CY16 due to current oversupply of marine vessels and low O&G general activity. More consolidation and vessel scrapping are needed for the Marine industry to turn around, in our opinion, given the current situation.

Forecasts

• Maintain forecast pending analyst briefing to be held on coming Friday.

• Catalysts

• Contract wins in DWM business.

• IPM contracts win.

Risks

• Further slowdown in drilling activity;

• Technology advancement;

• Relaxing of drilling waste management regulations.

Valuation

• We put the stock UNDER REVIEW pending more details on the upcoming analyst briefing. Our previous TP on the stock was RM0.21 based on 8x CY16 P/E.

Source: Hong Leong Investment Bank Research - 1 Jun 2016