Results

• Above expectations but within consensus: 4Q17 core loss of the group came in at RM124.4m, bringing FY17 core net earnings to RM223.4m, above our expectations at 121.9% but deemed within consensus at 90%.

Deviations

• Due to stronger than expected Energy profits on significant cost savings.

Dividends

• DPS of 1 sen/share was declared.

Highlights

• YoY: 4Q17 core loss of RM124.4m was reported against core loss of RM92.9m in 4Q16. This was mainly caused by (i) losses from Drilling division due to lower no. of rigs working upon cessation of charter for several rigs and (ii) higher losses from E&C segment due to lack of fabrication work done and lower T&I jobs in the quarter upon lack of job replenishment. This was partially offset by higher JV contribution due to higher contribution from Petrobras vessels and better Energy division performance driven by higher crude lifting price.
• QoQ: In 4Q17, core loss was reported against core profit in the preceding quarter mainly underpinned by (i) weaker drilling segment performance due to lower rig utilisation and (ii) weaker E&C contribution due to monsoon season which typically results in lower activities.
• FY17: Core net profit plunged 72.6% in FY17 mainly due to (i) significantly weaker drilling PBT (-74.1%) on the back of lower no. of drilling rigs in charter and (ii) lower E&C PBT due to lower work done in the year amid low oil price environment and lack of fabrication jobs. This was however partially offset by better Energy earnings due to savings in OPEX.
• Riding on the encouraging numbers reported so far, we anticipate FY18 numbers to be slightly better on the back of (i) strong orderbook cover of RM5.5bn for FY18 and (ii) stronger Energy division performance in anticipation of higher crude lifting price and lower cost base. The main potential drag on the group’s earnings would be from Drilling, of which rig utilisation may go below 50% if no new drilling charter contracts are secure.

Risks

• Execution risk, prolonged low oil price and delay in contract award.

Forecasts

• Maintained.

Rating

HOLD (↔)

• FY18 will still be a year of recovery for the group albeit only marginally better than FY17. Moving forward, the group’s performance will be anchored by its Energy earnings instead of its services segment (Drilling & E&C) and we believe more time is needed for significant recovery.

Valuation

• TP is raised to RM2.01 from RM1.80 as we peg a higher FY18 PBV multiple of 0.9x (from 0.8x previously) to account for asset impairment progress made on its assets in FY17 as well as lesser probability of further asset impairments on stabilization of oil prices at US$50-60/bbl level.

Source: Hong Leong Investment Bank Research - 03 Apr 2017