Journey to Wealth
TH Heavy Engineering - New life, new status
INVESTMENT MERIT
Likely upliftment of PN17. After two years of being classified as a PN17-status company, TH Heavy Engineering (THHE), or formerly known as Ramunia Holdings, has gone through several corporate exercises to improve its financials. Today, it has turned profitable and has on 31 July submitted an application to SC for an early upliftment from being classified as a PN17 company.
RM210m contracts for 12 months. In Mar12, it secured a RM23.6m fabrication job from Aquaterra Energy Ltd for the West Desaru Project, which was completed in July12. Three months later, it won two sizeable fabrication jobs from Sarawak Shell, totalling RM177.5m, scheduled for deliveries in 2Q13. With this, THHE has an orderbook backlog of c.RM210m, which will support its earnings for the next 12 months.
Tabung Haji the majority shareholder. After its recent corporate restructuring, Tabjung Haji now owns a 32% equity stake in THHE, an increase from 29% previously. This, in our view, could boost the public confidence in the company for its future growth prospect.
Fairly valued. The potential upliftment from PN17 status has caused the share price to rise 13% in the past week. While we reckon that THHE is financially stronger now and more profitable, we however, see little upside from here. THHE is fairly valued at RM0.55 based on 8.5x FY13 PER (ex-cash from the rights issue), which is our average targeted PER for small cap Oil & Gas stocks. On the downside, the rights price of RM0.40 should serve as a floor valuation.
SWOT ANALYSIS
Strength: Strategic location of its newly acquired 57-acre integrated fabrication yard in Port Klang, with an annual capacity of 10,000 mt.
Weaknesses: Its current PN17 status could challenge its ability to secure more contracts.
Opportunities: Business expansion into lucrative FPSO market by acquiring a FPSO vessel.
Threats: Margin contraction from FPSO segment due to pricing competition with the big boys.
TECHNICALS
Resistance: RM0.585 (R1), RM0.65 (R2), RM0.715 (R3)
Support: RM0.475 (S1), RM0.44 (S2), RM0.39 (S3)
Views: Bullish in the S-T & M-T
Comments: TH Heavy has just broken above the short term ascending triangle. Immediate TP of RM0.575 with the first level of support at RM0.475. Buy on weakness.
BUSINESS OVERVIEW
TH Heavy Engineering or formerly known as Ramunia Holdings is involved principally in the fabrication of offshore steel structures and the provision of other related offshore O&G engineering services in Malaysia. In order to secure more opportunities from the O&G sector and being part of its business growth plan, the group has decided to foray into marine vessels services as its first step to explore within the expansive O&G activities chain.
BUSINESS SEGMENTS
Offshore Structures Fabrications. Core business which focuses on the fabrication of offshore oil and gas facilities, including substructures, platforms and topsides.
HUC & Topside Major Maintenance. It offers offshore topsides modifications, upgrades, shutdowns, repairs and de-commissioning of existing or abandoned platforms. (Both these segments contributed 90% of the group's 1H12 revenue.)
Offshore Crane Manufacturing. This division is housed under its wholly owned subsidiary, O&G Works Sdn Bhd, and has been granted the license to manufacture offshore and marine crane.
Marine Services. This is a newly ventured business that enables the group to minimise the risk of its dependency on fabrication jobs. The acquisition of RM248.4m of FPSO vessel is part of its strategy to tap into demand for services in marginal oilfield development.
Source: Kenanga
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CS Tan
4.9 / 5.0
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
sirzack
when Tabung Haji comes in... this counter should fundamentally strong
2012-08-27 03:00