1QFY15  QoQ  revenue  came  in  at  24%  of  our  full-year  target  andbottomline was at 18% of our FY15 estimate. YoY, revenue surged 157% but  core  net  margins  declined  to  7%.  Maintain  BUY  with  a  lower MYR1.42 TP (a 67.1% upside), pegged to 9.5x FY15F P/E. The improved results were on higher sales recognition on vessels delivered. We lower our FY15-16 margins assumptions and revise net profit down by 5-11%. 

Bottomline  missed  target  on  declining  margins.  TAS  Offshore’s (TAS)  1QFY15  (May)  revenue  of  MYR76.4m, up  25%  QoQ  and  157% YoY, came in at 24% of our full-year target. However, its  core net profit of  MYR5.5m  (+11.1%  QoQ, +115.3%  YoY)  only  accounted  for  18% of our  FY15  target.  Quarterly  core  net  margin  fell  significantly  to  7% (1QFY14:  17%)  despite  the YoY topline  surge.  The higher results were mainly attributed to increased  sales recognition on four tugboats  and ananchor handling tug supply  (AHTS)  vessel  sold during the period under review. Note that there was a reversal of a MYR3.3m impairment loss on trade receivables recognised in 1QFY14.

Gaining traction in build-to-stock (BTS) model.  TAS  has entered into joint-venture  (JV)  agreement  with  Mr  Chan  Baihang  in  September  to fund  its  BTS  vessels.  The  company  said  the  BTS  model  requires intensive  investments  in  capital  and  that  the  JV  would  allow  TAS  to achieve  this  objective  while  minimising  the  exposure  risks  in  this operation.  Currently,  TAS  is building six more  offshore support vessels(OSVs), which ought to be delivered by 2015.

Maintain BUY with  a  lower  TP  of MYR1.42  (from MYR1.60).  We still like  TAS’s fundamentals, underpinned by growing demand for OSVs in the oil & gas sector, and coupled with a healthy orderbook. However, welower  our  FY15-16  net  profit  forecast  by  5-11%  by  assuming  lower margins.  We  also  revise  down  our  TP  to  MYR1.42,  pegged  to  an unchanged FY15F P/E of 9.5x.  Note that  this  is  still  at a 35% discount from its  4-year average P/E  of 15x, which implies a low 3-year average PEG of 0.23x. 

Source: RHB