TECHNICAL CALLING

A giant leap of faith, the oil to renewable energy story untold to investors.

Gem Man
Publish date: Wed, 26 Jan 2022, 12:26 AM

A giant leap of faith, the oil to renewable energy story untold to investors

 

The fear of inflation and geopolitical risks between Ukraine and Russia had contributed much the rise of oil price. That being said, however, the oil and gas sector in Malaysia market had not moved yet despite the strong movement of oil price.

For value investors, this might be the best opportunity to buy oil and gas companies at a much cheaper price, and today we are going to talk about this company who just recently changed their name to suit their directions in the future more, which is Fast Energy Holdings Berhad (KLSE: 0084).

What piqued our interest in this company is their involvement in “cleaner fuel”. Effective from January 2020, the IMO 2020 regulation had set a benchmark or mandate to ships to only consume fuel that had less than 0.5% sulphur content as compared to the previous 3.5% maximum sulphur content fuel source, or in layman term, ships can now only use VLSFO or MGO as a source of power.

There aren’t many companies that does this in Malaysia, and FAST is easily the largest company, who had to date secured several billions ringgit worth of VLSFO and MGO supply contracts.

We call this industry as the oil bunkering industry.

 

A very interesting point for the oil bunkering business, is the nature of it is more tilted towards trading. The oil bunker company would first buy the fuel, and then resell the oil back to ships or vessels, and with the oil price moving towards higher level, the trading companies are prone to make really good profits out of it.

And this is really looking good for FAST at the moment. Although there are some initial gestations of their new business, which had cause them to suffer minor losses, but I believe as oil price move stronger, the earnings capability of this company will ultimately improve.

But that, is not all.

 

As you can see here, the company had earlier incorporated a solar-related subsidiary to venture into the other end of energy. Apart from adhering to the IMO 2020 regulation, their involvement into the solar industry had also increased their exposure and well, as analysts put it, scoring in terms of ESG valuations.

The act of FAST is in line with the general oil and gas industry to slowly diversify their energy generation to greener solutions, such as the solar end.

There is an additional reason why I liked FAST so much.

As far as I’m concerned, investors in Malaysia generally “shun” companies who raised funds. Well, this is especially true after the SERBADK incident. Now, we note that FAST had actually just completed their rights issue exercise as well as warrant issuance. What this mean for new investors is, the downside risk for FAST is much lower than the potential upside instead. In accordance with the right trend, right industry and for now, right price, I think it is very safe to invest in FAST now.

 

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