Investors zooming in on Scomi Energy 7045

by **Cals** Sat 13 Jul 2013, 11:43

Published: Saturday July 13, 2013 MYT 12:00:00 AM
Updated: Saturday July 13, 2013 MYT 10:41:38 AM
Investors zooming in on Scomi Energy
[b style="margin: 0px; padding: 0px; border: none;"]BY YVONNE TAN[/b]
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Bracker: ‘We have the capacity to take in another RM2bitlo RM3biwl orth of jobs.’
[b style="margin: 0px; padding: 0px; border: none;"]The company’s shares are up for sale[/b]

SCOMI Energy Services Bhd has been catching the eye of the investing community a little more than usual of late.
Its share price rose sharply recently with trading volume ballooning over 10 times.
Word has it that Standard Chartered Private Equity, which is the second largest shareholder in the company, is looking to dispose of its 11.48% block.
Together with the company’s parent – Scomi Group, they collectively control over 77% of Scomi Energy, a provider of services to the oil and gas and marine industries.
To find buyers for its block, industry sources say a roadshow was organised by Credit Suisse last week in Singapore and KL to showcase the company to fund managers.
Although shareholding changes, if any, have yet to show up on the stock exchange, the share price of Scomi Energy shot up 26% last Friday to 98 sen on heavy volume of some 52 million shares.
Since then, the stock has been hovering around the 81.5 sen - 85 sen level, a little off the target price of 88 sen set by Hong Leong Investment Bank which initiated a “buy” on the company in a June 4 report.
President – product line, oilfield services Steve Brackerconfirms that the group has recently embarked on several roadshows to “re-introduce” the streamlined entity to the financial and investing community.
“We have had a good response which is very encouraging,” he tells StarBizWeek via email.
Notably, Scomi Energy chief executive officer Shah Hakim @ Shahzanim Zain had also been actively buying up shares in the firm in the May to June period, holding a direct stake of 0.09% at last look.
Scomi Energy, which not too long ago was only focused on marine services, involved specifically in coal transporting in Indonesia, says it now has an extensive portfolio to offer to investors.
“The enlarged entity now encompasses drilling fluids, drilling waste management, production enhancement; and offshore support and marine logistics vessels,” Bracker says.
He says the merger of all of its oil and gas (O&G) units also puts the company on a stronger financial footing, allowing it to “aggressively” participate in the industry.
Recall, its parent Scomi Group Bhd had in March completed its restructuring exercise which saw all its units involved in the O&G business consolidate under one entity - Scomi Energy.
Started in February 2012, the exercise saw the disposal of Scomi Oilfield Ltd, Scomi Sosma Sdn Bhd and Scomi KMC Sdn Bhd by Scomi Group to Scomi Energy.
It also involved an internal restructuring of legal entities within the oilfield services for oil field services in the Eastern Hemisphere business to fall under Scomi Energy; and also a capital repayment within Scomi Energy to its shareholders.
Scomi Energy reported a net profit of RM20.1mil on revenue of RM283.2mil for its latest quarter ended March 31. Based on the latest financials, its net gearing is about 0.3 times.
[b style="margin: 0px; padding: 0px; border: none;"]Riding the wave[/b]
The Eastern Hemisphere which includes Asia and the Middle East and which is where Scomi Energy is in, is set to see exciting growth in the oil and gas industry, say the experts.
Citing international research firm The Spears and Associates’ June report, Bracker says a 12% growth in the Middle East is anticipated this year with a 9% growth in the Far East.
“These are the regions where we are active in with the streamlining of our business.
“From mid last year, we have already won several major contracts in Qatar, Indonesia, Turkmenistan, Myanmar as well as locally. We continue to actively pursue contracts especially in Thailand, Indonesia and India.”
Scomi Energy’s current drilling orderbook is at RM5bil.
“We have the capacity to take in another RM2bil to RM3bil worth of jobs,” says Bracker.
Over the next couple of years however, it is setting its eyes on contracts worth some RM1bil even as it focuses on the execution of its existing contracts.
Bracker says the company is looking at several opportunities in Indonesia, Malaysia and Turkmenistan and continues to actively pursue contracts in Thailand and India.
“These areas are seeing increased growth.
“According to the Spears and Associates June 2013 report, India offshore operators are planning more development of deepwater gas reserves and in Indonesia, the government is being proactive towards the industry and has promised to improve investment opportunities with reduced bureaucracy to increase exploration and production.”
In Malaysia, analysts believe that drilling activity will intensify due to enhanced oil recovery, marginal field development and exploration.
“We believe the Government’s effort in increasing oil and gas production forms a strong foundation for offshore drilling activities, notes Hong Leong, adding that Scomi Energy will be one of the main beneficiaries given its 50% market share in drillling fluid and drilling waste management business in Malaysia.
It adds, citing reports that the addressable drilling waste market size for Scomi Energy is estimated to be US$2.1bil (RM6.7bil) this year.
Bracker does not reveal the margins of its oilfield projects, which currently contribute the bulk to company revenue at more than 80%, when asked.
Excluding the marine vessel side of the business, gross margin for the oilfield business for the first two-months of the our financial year (FYE March 2014) has “improved” over the last financial period, is all he offers.
However, analysts have put the company’s oilfield gross profit margins at an average of 26%.
Bracker adds that the restructuring has allowed the company to optimise its operations and to share resources, resulting in a very lean and flat organisation.
In terms of Scomi Energy’s expansion plans, he says it has continued to grow its facilities with increased storage at its Liquid Mud Plant in Kemaman and also recently over a period of several months, it completed outfitting its Liquid Mud Plant in Indonesia.
“These are signs of our business growth as the plant in Indonesia is the first major liquid mud plant of this scale outside of Malaysia for us.”
For the marine services, the focus is on offshore support services (OSVs) and looking at a fleet revitalisation plan with new builds and acquisition of vessels.
Just last month, Scomi Energy embarked on a joint-venture with shipping firm Freight Management Holdings Bhd to jointly acquire, own and operate marine vessels.
The company’s plan to buy more OSVs is synergistic to the drilling business as the vessels are required to transport the drilling fluids and conduct other drilling-related services.
Bracker says combining the company’s knowledge and expertise in the marine industry with the drilling fluids and drilling waste management segments is opening up vast opportunities to further” bundle” its services and to explore innovative solutions for its clients.
Currently, it owns 75 tugs and barges and 11 offshore support vessels. According to analysts, the gross margins for the marine business is about 21%.

[b style="margin: 0px; padding: 0px; border: none;"]The risks[/b]
Competition is always the risk in this business, Bracker says.
He notes that the drilling waste management business is more capital intensive than the drilling fluids.
There are also similar waste management products continuously being introduced to the market.
“However, our drilling waste management product portfolio continues to grow.”
He points out that retention of skilled technical or engineering manpower is another challenge that it is facing and will continue to face in the foreseeable future.
In its report, Hong Leong notes that at current price of 81.5 sen, Scomi Energy has shot ahead of its fundamentals and is trading at about 15 times FY03/2015 earnings per share of 5.5 sen.
However, it tells its clients that it likes the company for the long-run and that it is one of the top picks in the drilling sector given its huge prospects from the drilling fluid and drilling waste management business.

by **Cals** Sat 13 Jul 2013, 11:46

SCOMIES 7045

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Investors zooming in on Scomi Energy 7045

Investors zooming in on Scomi Energy 7045

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