Period

4Q15/FY15

Actual vs. Expectations

FY15 results came in below our and market expectations with an unexpected core net loss of RM27.3m after stripping off deferred tax provision, provisions on impairment on receivables and impairment on vessels.

The variance from our forecast is largely due to lowerthan- expected OSV vessel utilisation and higher-thanexpected operating expenses on its high-end vessels.

Dividends

No dividend was declared as expected. Key

Results

Highlights

4Q15 sank into RM40.5m losses from RM0.3m profit in 3Q15 after we excluded an exceptional high deferred tax provision of RM71.7m which we believe it is related to the impairment done on the same time. The poor results were also dampened by lower OSV vessel utilisation amid a slowdown in the OSV market. Furthermore, underwater services division also registered a 10.2% decline in revenue due to lower activities caused by year-end monsoon season.

On a YoY basis, core earnings also tanked from RM4.6m profit in 4Q14 due to lower numbers of OSVs at work and flattish contribution from underwater services division. Cumulatively, FY15 turned into red, recording a core net loss of RM27.3m from a core net profit of RM57.3m in FY14 due to the abovementioned reason. Meanwhile, underwater services segment earnings worsened by 52.6% YoY despite its revenue growing 13.8%.

Outlook

The OSV segment is expected to be challenging in 2016 and 2017 given the current adverse movement in crude oil prices. Renegotiation of charter rates on existing contracts would have already been reflected in 2H15 and expected to stay low in the next few quarters. (Refer overleaf.)

Change to Forecasts

We cut FY16E CNP by 82% to RM5.5m by factoring in: (i) average wholly-owned vessel utilisation to 65% from 75% previously to factor in slower demand in the OSV market amid low oil price environment.

Meanwhile, we introduce FY17E CNP at RM5.6m based on: (i) average 65% vessel utilisation, and (ii) RM150m topline contribution from underwater services segment.

Rating

UNDERPERFORM maintained

Valuation

Our TP is reduced to RM0.29 from RM0.32 pegged to a lower targeted PBV of 0.3x from 0.4x previously, which is lower than -2SD below its 8-year mean to account for weaker prospects in the near-term.

Risks to Our Call

Upside Risk: (i) Better-than-expected OSV and underwater services division, (ii) Higher-than-expected margins on vessels, and (iii) Faster than expected recovery in OSV market.

Source: Kenanga Research - 1 Mar 2016