· Shining in the dark. E. A. Technique (M) Bhd (EATECH) is one of the top performers in the oil and gas (O&G) sector in terms of earnings growth (239% vs -9% in 1H15) as well as share price performance amid the challenging operating environment since the plunge in crude oil prices in June last year. Incorporated in 1993 and listed in 2014, EATECH is a ship owner and operator of marine vessels, providing O&G port transportation services. The core business is well supported by a fabrication yard at Hutan Melintang, Perak, which handles shipbuilding, ship repair and minor fabrication work.

· Tripling its earnings base this year. EATECH is poised for impressive growth with its earnings base forecasted to triple from RM14.2m in FY14 to RM46.5m in FY15 and RM64.6m in FY16 mainly underpinned by maiden contribution from Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) segment. To recap, EATECH was awarded an EPCIC contract of a floating storage and offloading facility (FSO) for a Full-Field Development Project in the North Malay Basin by Hess Exploration and Production Malaysia B.V. end of last year. The project worth USD191m and is estimated to be delivered in August 2016 followed by a two-year warranty. We are confident of its execution ability as EATECH has the track records of converting its wholly owned FSU and FSO.

· Steady vessels expansion fully backed by firm contracts. Its core business in marine transportation, offshore storage of O&G and port marine services (contributed more than half of its earnings in 1HFY15) is expected to clinch a topline growth of 48.0/25.6% for FY15/16E driven by the addition of 7 vessels (1 fast crew boat and 6 harbour tugs) which are all backed by secured contracts with duration ranging from 3 to 6 years. The conservative approach of building or buying vessel upon securing new contract allows EATECH to maintain 100% fleet utilisation. Moreover, unlike other O&G asset players, EATECH only experienced minimal margin pressure and none of the projects in hand have been delayed, rephrased, abandoned or cancelled. This makes it stand out among its peers.

· Benefiting from completion of dry dock by mid-2016. EATECH is constructing a dry dock which is expected to be completed by middle of next year. Upon completion, the yard will be providing dry docking services to the in house vessel and hence reducing its maintenance cost and improving the margin. Furthermore, this could be another new source of income as the management plans to provide such services to external clients. As the quantum might be minimal in the near term, we do not factor it in our forecast at this juncture.

· Trading Buy with FV at RM1.67. EATECH has been outperforming its peers since its listing with the share price rising 190% YTD. Despite the strong rally, we believe there is still upside in the stock given the recurring income stream backed by long-term contracts and potential job awards from its RM1.0bn tenderbook. We value EATECH at RM1.67 based on CY16 PER of 13x. We ascribed a higher premium to MHB which is also an O&G offshore fabricator given its recurring income backed by long term contracts and better earnings growth prospect. We have Trading Buy recommendation on this under-researched stock. 

Source: Kenanga Research - 12 Nov 2015