TH Heavy frontrunner for Petronas fabrication contract

by **Cals** Wed 25 Sep 2013, 17:10

Published: Wednesday September 25, 2013 MYT 12:00:00 AM
Updated: Wednesday September 25, 2013 MYT 8:01:03 AM
TH Heavy frontrunner for Petronas fabrication contract
BY TEE LIN SAY
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Nor Badli: ‘If we do get SK316, then we would use McDermott’s fabrication yard on Pulau Batam, Indonesia.We would also expand our own yard on Pulau Indah.’
Petaling Jaya: TH Heavy Engineering Bhd (THHE), whose stock price has more than doubled since mid-April, is close to winning a significant contract that would likely give it a re-rating of sorts, insiders said.
The offshore oil and gas (O&G) services provider, which is 29.29% owned by pilgrim fund Lembaga Tabung Haji and in which tycoon Tan Sri Quek Leng Chan has about 9.09% via GuoLine Capital Ltd (GCL) and his own name, hit a high of 96.5 sen on July 19.
It closed yesterday 1.5 sen higher at 86.5 sen.
Market talk is that THHE is the frontrunner for the massive fabrication job byPetroliam Nasional Bhd (Petronas) for the latter’s SK316 field.
That THHE had jointly bid for the US$1bil (RM3.22bil) job with McDermott International Inc has already been announced.
Sources told StarBiz that Petronas would announce the winner next month.
The project entails the development of two gas fields in the SK316 block, sited about 200km north of Bintulu, Sarawak. The development will comprise a central processing platform and a bridge-linked wellhead platform.
The other bidder for the job is the joint venture of Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) and Technip SA.
Despite rumours that THHE is the frontrunner, chief executive officer Nor Badli Mohd Alias declined to confirm this when contacted. Instead, he said: “THHE’s chances are equal to its competitor.”
THHE currently has an order-book of close to RM300mil, with a yard space that is able to handle 10,000 tonnes on Pulau Indah, Port Klang. It is in the midst of expanding the yard to 20,000 tonnes.
“If we do get SK316, then we would use McDermott’s fabrication yard on Pulau Batam, Indonesia. We would also expand our own yard on Pulau Indah to 60,000 tonnes over the next two years,” said Nor Badli.
A fund manager said that should THHE win the SK316 contract, it would call for a re-rating of the stock, as it would mark its entrance as an O&G deepwater player. It would also show that THHE had the ability to take on full engineering, procurement, construction, installation and commissioning (EPCIC) works.
“It would also be THHE’s inaugural contract where it is jointly working with McDermott. Petronas appears to be dishing out full on EPCIC projects. The tie-up with McDermott is important, as it has enabled THHE to bid for more complex jobs,” said the fund manager.
Currently, there are only two players who can provide full EPCIC works; MMHE-Technip and SapuraKencana Petroleum Bhd-Saipem SPA.
Earlier this year, THHE had participated in a JV agreement with McDermott’s local unit, Berlian McDermott Sdn Bhd.
Under the agreement, THHE has a 30% stake in Berlian McDermott, while McDermott has 30% in THHE unit THHE Fabricators Sdn Bhd. Both stakes are worth US$25.47mil (RM81.94mil).
Another contract that THHE is vying for is the development of marginal oilfields byVestigo Petroleum Sdn Bhd under the third round of risk service contracts (RSC).
Vestigo is on the lookout for a floating production, storage and offloading (FPSO) or a floating storage and offloading (FSO) charter to support crude production of up to 6,000 barrels per day for a charter running between two and seven years.
THHE currently has an FPSO vessel, which could also be used as one of the solutions for the RSC if its partner was successful in the bid.
Previously, analysts had estimated the contract winner to garner between RM50mil and RM100mil a year, but noted the price might vary based on the specifications of the vessels.
Bumi Armada Bhd, Perisai Petroleum Teknologi Bhd, Yinson Holdings Bhd andM3nergy Bhd are the potential players vying for the charter.
Quek first made his investment in THHE in May via GCL, when he bought 92.79 million shares via a private placement for RM41.8mil. Part of that was directly through his youngest son Quek Kon Sean, who would subscribe to 27.8 million shares. GCL is a unit of Quek’s flagship Hong Leong Co (M) Bhd. Their entry cost was at the 44 sen and 45 sen level.
Quek’s entrance immediately saw the share price rising, with institutional funds chasing it up. Since then, THHE has become a favourite among analysts.