Results

• Above expectations but still in red: 4Q18 recorded core loss of RM29.4m, bringing FY18 core loss to RM242.9m, lower than HLIB’s but higher than consensus losses of RM273.5m and RM217.2m respectively.

Deviations

• Lower than expected depreciation charges.

Highlights

• YoY : Core loss narrowed 56% due to lower operating expenses attributed by cost cutting measures by the group and lower depreciation charges.

• QoQ : Core loss narrowed significantly due to higher contribution from E&P division attributed to higher oil prices and lower depreciation charges.

• FY18: Core loss of RM242.9m was posted against core profit in FY17 due to lower contribution from all divisions and lower share of profit from associates due to cessation of Berantai Risk Service Contract, partially offset by lower operating expenses and lower depreciation charges.

• The latest order book (including JV level order book) stands at RM16.6b and c.RM3.4b is expected to be recognized for their E&C and drilling divisions in FY19 assuming no new contract replenishment in the rest of the year.

• We expect utilization rates from drilling segment in FY19 will remain similar with FY18 level (33% utilization rates) and we do not expect a significant recovery in the near term due to oversupply of rigs globally.

• Energy division is expected to fare better in FY19 due to higher lifting volume contribute by SK310 B15 that had achieved first gas in October 2017,

Risks

• Execution risk, prolonged low oil price and low rig utilisation.

Forecasts

• Our FY19-20 loss projections are reduced to RM128.2m and RM14.6m respectively to reflect lower depreciation charges.

Rating

HOLD ↔ , TP: RM0.48

• Near term headwinds persists for the group with a gap still to be closed to maintain its revenue base. Weak rate outlook for tender rig division and margins for E&C segment has weighed on the company’s near term earnings outlook. Nevertheless, the company is a direct beneficiary of current improving oil price as a major integrated oil field service provider and its crown jewel E&P segment.

Valuation

• Maintain HOLD with lower TP of RM0.48 (from RM0.67) after taking into account the impairment of drilling assets. Our TP is derived from 0.3x P/BV which is 2 s.d. below 2-year average as we still foresee challenging near-term prospect.

Source: Hong Leong Investment Bank Research - 29 Mar 2018