News

Yesterday, BARAKAH announced that its wholly-owned subsidiary, PBJV Group Sdn Bhd signed a Memorandum of Collaboration (MoC) with Ocean Installer Ltd (OI), a Norwegian subsea provider to provide deepwater installation of subsea umbilicals, risers and flowlines (SURF) and related services exclusively in Malaysia.

Established in 2011, OI is positioned in the top 10 subsea markets globally with a track record of completing projects in Norway, UK, Gulf of Mexico, USA and Brazil.

The MOC will last for two years effective from the date of signing the contract.

Comments

We were surprised by the announcement as we did not anticipate any business expansion into deepwater segment which is currently experiencing a massive slowdown.

Notwithstanding, we are positive on the MOC which lasts for two years as the company mostly offers subsea infrastructure installation in shallow water region up to water depth of 200m. Such move allows BARAKAH to leverage on OI’s expertise to penetrate the local SURF installation market and take its business to greater heights.

Should BARAKAH is able to demonstrate the deepwater capability and establish a track record, it will transform into an installation expert covering both shallow and deepwater spectrum in a longer run.

As of now, we reckon there won’t be any job contract win by the duo in the second half of the year and early of next year amid the volatile oil price environment.

Meanwhile, impact to balance sheet is kept minimal at this stage as the tie-up will only look into acquiring subsea construction vessel in the event of gunning down new job.

Outlook

We believe its pipeline services business will remain resilient under current market conditions as it is more skewed towards maintenance services, which are less sensitive to market cycles.

However, there are concerns on the installation and construction division which has yet to secure any transportation and installation job this year.

Based on our back of the envelope calculations, the orderbook should be reduced to RM1.7b from RM1.8b due to slower contract replenishment as at end 2Q15.

Excluding the tender book for the Arab Saudi project, BARAKAH is currently bidding for RM400m–RM600m worth of projects.

Forecast

As the financial impact is likely to be minimal for now, we maintain our forecasts pending 2Q15 results announcement end of this month.

Rating

Maintain MARKET PERFORM

Valuation

Our Target Price is maintained at RM0.94, pegged to unchanged CY16E PER of 9.0x which is consistent with small caps’ valuations (7-10x) in an industry down-cycle.

Risks to Our Call

(i) Slower-than-expected execution in the Pan Malaysia T&I project and (ii) Lower-than-expected margins.

Source: Kenanga Research - 14 Aug 2015