Carimim Petroleum Bhd (CARIMIN), which is en-route for a listing on 10 Nov, is a technical support services provider in the oil and gas industry. The group key activities are: (i) hook-up and commissioning (HUC), (ii) production platform system maintenance and upgrading services (PMUS), (iii) inspection and manpower supply services, (iv) equipment rental, and (v) minor fabrication services. We like CARIMIN for: (i) strong access to highly skilled human resources, (ii) long-term contract providing earnings visibility, (iii) official PETRONAS licenses holder and, (iv) strong track record. As at the LPD, the company has an order book of RM800.0m for offshore HUC and PMUS, and RM100.8m for manpower supply services which provide earnings visibility for the upcoming three years. We forecast FY15 and FY16 net profits of RM21.0m and RM23.3m, respectively, on the back of order book of RM900.8m and contract replenishment of RM30.0m-RM50.0m. While we do not assign any rating to the stock, we believe that CARIMIN should be valued at CY15 PER of 12.0x, at 20.0% discount to the target PER of 15.0x for Dayang Enterprise (DAYANG; OP; TP: RM4.52) which leads to a fair value of RM1.14/share.

PETRONAS licenses holder. In Malaysia, services provider need to obtain specific licenses issued by PETRONAS in order to tender for contract in the oil and gas industry. CARIMIN is an official PETRONAS licenses holder for a supply range of services such as offshore HUC, production platform system maintenance and upgrading, manpower supply and minor fabrication services.

Strong access to highly skilled human resources. CARIMIN has strong access to skilled workforces in oil and gas industry through its extensive in-house database of approximately 1,000 geoscientists, engineers, technicians, professionals, welders, riggers and other personnel. CARIMIN is also able to access third party database and industry contacts which allow them to fulfil its’ customers staffing needs on urgent basis.

Longer-term contracts provide earning visibility. Currently, CARIMIN has an order book of RM900.8m (excluding optional extensions) which provides earning visibility up to 2017. The long-term contract provides the advantage of stable operating cash flows for CARIMIN, giving management the platform to further expand their business either vertically or horizontally within the oil and gas industry.

Earnings forecasts. We forecast FY15 and FY16 net profits to register at RM21.0m and RM23.3m, respectively. Earnings drivers are: (i) current order book of RM900.8m, (ii) HUC contract replenishment of RM30.0m-RM50.0m, and (iii) stable earnings growth from manpower services division.

The risks to CARIMIN include: (i) a downturn in the oil and gas sector that will delay contract flows, (ii) dependency on major customers, and (iii) inability to secure new contracts.

Source: Kenanga