Steel Hawk Berhad (SKHAWK, 0320) is primarily involved in providing Engineering, Procurement, Construction, and Commissioning (EPCC) services, along with facilities improvement and maintenance, particularly in the oil and gas (O&G) industry. The company also engages in the installation and maintenance of oilfield equipment, as well as the supply of oilfield equipment. SKHAWK is well-positioned for future growth, supported by its strategic expansion initiatives and diversification into the renewable energy sector. The company’s strong ongoing projects and contract backlog are expected to drive earnings growth. We expect SKHAWK to register net earnings of RM8.7m and RM9.5m for FY24 and FY25, respectively. BUY with a FV of RM0.28 based on 12x circa. peers at similar market capitalisation over FY25 EPS.

SKHAWK has a strong presence within the Malaysian oil and gas sector, serving clients across the upstream, midstream, and downstream segments. The company’s operations are supported by its own fabrication and maintenance facilities, which ensure the highest quality of services. Their core offerings include EPCC services for chemical injection skids, pipeline inspection gauge (pig) trap systems, and various maintenance and improvement services for topside O&G facilities.

To enhance future earnings, SKHAWK is expanding its fabrication capacity with the construction of a new facility - Teluk Kalung Facility 2, which will increase its total fabrication capacity five folds. This new facility will allow for more extensive steelwork fabrication and in-house blasting and painting activities, reducing reliance on third-party subcontractors, optimizing turnaround times, and improving cost efficiency.

The company’s operations are strategically located across Malaysia, with facilities in Kemaman (Terengganu); Petaling Jaya (Selangor); and Miri (Sarawak). These locations are strategically located close to the vicinity of O&G production hubs thus enabling SKHAWK to effectively serve its clients in these key areas. The outlook for the oil and gas services and equipment industry remains positive, particularly with the ongoing capital expenditures by PETRONAS and the sustained demand for petrochemical products.

SKHAWK has demonstrated robust financial performance, with significant revenue growth driven by new and ongoing contracts. Financial leverage is manageable, with net gearing of less than 0.1x as of 1QFY24. We expect this level to be maintained post-IPO.

Source: Rakuten Research - 5 Sep 2024

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