T7 Global Bhd (T7Global, 7228) PATAMI surged 125.4% YoY to RM8m in 3QFY23, bringing its 9M23 PATAMI to RM18.7m. In view of the delay in first gas for its T7 ELISE Mobile Offshore Production Unit (“MOPU”) and the absence of confirmation regarding its standby fees at this juncture, we tweaked our FY23/FY24 PATAMI forecast to RM32.8m/RM35.6m. After all, T7Global’s prospect remains rosy due to (i) growing recurring leasing revenue as the company adds-on more MOPUs; (ii) incremental revenue and profit from its Airport Baggage Handling System (BHS); (iii) its Aerospace division entering the ramp-up phase. Backed by its robust orderbook amounting to RM2.3bn, BUY with a TP of RM0.62 based on 13x PER over FY24 EPS of 4.8sen, justified by its defensive oil & gas recurring revenue and its diversified revenue stream.

Despite the delay in first gas attributed to issues arising from other vendors, T7 ELISE MOPU started contributing revenue and profit in 3QFY23. Impressively, T7 ELISE MOPU achieved an average uptime of 95%, 3% higher than the targeted average uptime, demonstrating T7Global’s operational excellence. While T7 ELISE MOPU is already a key growth driver, investors would be delighted to learn that Nong Yao MOPU is also targeted to commence its first gas production in March 2024 as the refurbishment & modification is currently 70%-completed. As Nong Yao MOPU is actually a refurbished and modified MOPU, we anticipate it will significantly boost the bottom line by 16%, owing to its higher-margin structure compared to the T7 ELISE MOPU. In other words, FY24 will be the first year in the history of T7Global to have two MOPUs contributing revenue and profit simultaneously.

Meanwhile, 3QFY23 also marks the first quarter of revenue and profit recognition for the Airport Baggage Handling System (BHS) Project, which explains the 550% YoY revenue growth in the non-energy division. At 26% progress completion, we foresee much higher revenue recognition in FY24 as the project enters its S-curve phase of development. Since the management is more conservative on its construction cost budgeting, we also foresee improving profitability margin especially towards the tail-end of the project. It is also noteworthy that T7Global stands to potentially secure the Operations & Maintenance (“O&M”) contract once the construction is completed in 2-3 years. For the Aerospace segment, T7Global successfully onboarded new clients from Vietnam, Singapore and Taiwan recently. After almost doubling its parts processed MoM in October 2023, management is confident the Aerospace segment has entered its ramp-up phase and is primed for high-growth trajectory from FY24 onwards.

Investors may be taken aback by T7Global's net gearing of 2.35x as at 3QFY23, of which most of the borrowings are project financings for the MOPU. However, we are comforted by the fact that T7 ELISE MOPU has started contributing revenue and profit for the company to deleverage until it comes across another promising MOPU opportunity.

Source: Rakuten Research - 23 Nov 2023

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