Hot Stocks Freight Management 7210, Scomi Energy rise on JV

by **Cals** Tue 04 Jun 2013, 15:58

Hot Stocks Freight Management, Scomi Energy rise on JV
Business & Markets 2013
Written by Kamarul Anwar of theedgemalaysia.com
Tuesday, 04 June 2013 15:43

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KUALA LUMPUR (June 4): Freight Management Holdings Bhd (FMHB) appreciated by as much as 10 sen or 7.14% while Scomi Energy Services Bhd (SESB) gained 3.5 sen or 5.79%.

The gains came on both firms' joint venture (JV) to provide marine vessels for oil and gas (O&G) operations across South East Asia.

At 3:02 pm, logistics and warehousing specialist FMHB shares were up seven sen or 5% to RM1.47 with 57,000 shares done.
SESB rose three sen or 4.96% to 63.5 sen on a volume of 2.42 million.

Yesterday, FMHB announced that it had entered into two JV agreements with SESB to acquire, own and operate marine vessels.

The vessels will be leased to third-party O&G players in the region.

FMHB and SESB will set up two equally-owned JV companies. One is for the acquisition and ownership of marine vessels while the other will undertake the task of operating the transport entities.

In a note today, RHB Research analyst Jerry Lee said the research firm has upgraded its target price for FMHB by 23 sen to RM1.71 while maintaining a “buy” call for the stock.

“While we make no changes to our earnings forecast, we are raising our valuation from 9.5 times FY14 price-earnings ratio (PER) to 11 times FY14 PER.

"We think the re-rating is warranted due to its expansion into the bustling O&G sector,” Lee said.

Lee said the JV will be a win-win situation for both FMHB and SESB as both companies will be able to tap each other’s knowledge and experience.

FMHB already offers tug and barge services while SESB is an O&G player.

“Since the capital outlay is quite minimal, which is approximately RM1 million from each party with positive upside potential, we think this JV is a win-win situation for both companies,” Lee said.

SESB had also attracted market interest after Hong Leong Investment Bank (HLIB) initiated of coverage on the stock.

HLIB said SESB has an order book of RM5 billion and is targeting to secure another RM400 million worth of contracts.

SESB’s order book, which was ballooned after its acquisition of Scomi Oilfield, translates to 3.7 times HLIB’s projection for SESB’s FY14 revenue.

According to HLIB, there is a “misperception by the market” about SESB being a mere coal logistic provider.

“The company’s order book-to-market capitalisation stands at about 3.7 times but the company only trades at 11 times FY15 PER as compared to peers that have huge order books.

"We believe the current order book for SESB has yet to accurately factor in the current O&G upcycle, further understating its potential upside. The market still views SESB as a coal logistic provider and not a drilling-related play.” HLIB said.