Freight Management (FMH) announced that  it has  inked a joint-venture (JV)  agreement  with  Scomi  Energy  Services  (SES)  to  jointly  pursue businesses  relating  to  the  provision  of  services  to  the  O&G  industry, which include  leasing or chartering marine vessels on  a  bare boat/time charter  basis to third parties in the region.  While there is  no change to our  earnings  for  now,  we  view  the  pact  positively  and  revise  our  FV upwards to MYR1.71, pegged to a higher P/E of 11x. Maintain BUY.

- Briefly on  the JV.  The JV is divided  into two parts: (i) with a total paid up  capital  of  USD600k,  FMH  and  SES  will  form  a  50:50  company “Vessel  Owner”,  specializing  in  buying  marine  vessels  and chartering/leasing out these vessels to third parties on a bare boat basis, (ii)  with  a   total  paid  up  capital  of  MYR50k,  FMH  and  SES  will  form another 50:50 company  “Vessel Operator”  to jointly operate the marine vessels  and  charter/lease  out  these  vessels  to  third  parties  on  a  time charter basis.    Vessel Owner’s first project  will be  to purchase a tug & barge.

- A  win-win  situation.  By  entering  into  this  JV  agreement,  we  reckon SES would be able to tap on the knowledge and experience from FMH in tug & barge services,  while FMH would be able to leverage on SES to widen  its exposure in the booming O&G sector.  Since the capital outlay is quite minimal, which is approximate ly MYR1.0m from each party with positive upside potential, we think this JV is a win-win situation for both companies.

- Widening  exposure in O&G.  FMH has already gained exposure in the O&G  sector  by  providing  warehousing  services  to  Shell.  After  the  JV, FMH  would be able to provide more services to its O&G-related clients and expand its clientele in the O&G sector.

- Higher  FV. While we make no changes to  our earnings forecast, we are raising  our valuation from 9.5x FY14F  P/E to 11x FY14F  P/E. We think the re-rating is warranted due to its expansion into the bustling oil and gas sector. Maintain BUY on FMH, with a new FV of MYR1.71.

Source: RHB