Sources SILK well positioned for Petronas OSV contract

by **Cals** Tue 21 Jan 2014, 17:07

Sources SILK well positioned for Petronas OSV contract

Business & Markets 2014

Written by Syarina Hyzah Zakaria of theedgemalaysia.com

Tuesday, 21 January 2014 15:00

TOLL concessionaire and the country’s second largest offshore supply vessel (OSV) owner SILK Holdings Bhd is poised to win a tender called by Petroliam Nasional Bhd (Petronas) for medium to large OSVs, say sources.

According to executives familiar with the matter, Petronas issued the invitation to bid (ITB) last December and requires ships big enough to operate in and pull rigs in deep waters.

SILK, through its subsidiary Jasa Merin (M) Sdn Bhd, owns 21 ships, of which three were ordered in March last year. Two of them have been delivered. Of these three anchor handling tug supply (AHTS) vessels, one is 70m with a bollard pull of 120 tonnes while the other two are 62m with a bollard pull of 60 tonnes. The latter have 5,220 brake horsepower (bhp) and the former 10,800 bhp. Bollard pull measures the maximum pulling force of a vessel.

The three AHTS vessels were built by Muhibbah Marine Engineering (M) Sdn Bhd, a subsidiary of Muhibbah Engineering (M) Bhd.

According to a source, Jasa Merin recently ordered another three AHTS vessels that meet Petronas’ specifications.

“It looks like they [Jasa Merin] have ordered the right ships for the upcoming tender. SILK is well positioned because since last year — when all the other OSV players were ordering small ships — it has been ordering large vessels.

“The new ones [that have been ordered] have a bollard pull of about 140 tonnes and are big enough to operate in deep waters.”

While other OSV operators like Perdana Petroleum Bhd, Icon Offshore Bhd and Alam Maritim Resources Bhd may also participate in the tender, industry analysts note that these companies may not be as well equipped as SILK.

“This time [when the ITB was issued], Alam Maritim and Perdana Petroleum lacked the ships needed,” an analyst with a bank-backed research house tells The Edge.

The analyst estimates that Petronas will require 20 OSVs for its upcoming tender. “Perdana Petroleum has five with a capacity of more than 100 tonnes of bollard pull, but four of these AHTS vessels have already been chartered out. Alam Maritim has only two ships with similar specifications. As for Icon, it only has small ships.”

As Jasa Merin will probably not be able to fulfil Petronas’ demand for 20 vessels, the national oil company will likely source for ships in Singapore, the analyst notes.

Should Jasa Merin clinch the OSV contract, it will most likely be a catalyst for SILK, which depends on its oil and gas division to boost its earnings.

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In 1QFY2014 ended Oct 31, the group recorded a 22.6% drop in net profit to RM2.18 million from RM2.82 million the year before on revenue of RM94.45 million. In FY2013 ended July 31, SILK reported a net profit of RM4.41 million on revenue of RM383.35 million compared with a loss of RM679,000 in FY2012.

In its 2012 annual report, SILK noted that its oil and gas support services division continued to be the main contributor to its top line, accounting for 80% of the group’s total revenue.

The deployment of additional vessels last year, coupled with improved charter rates, also allowed SILK’s oil and gas segment to record a pre-tax profit of RM41.7 million compared with RM37.5 million previously.

In FY2013, Jasa Merin announced seven new contracts for its vessels and two extensions of previous contracts. It also deployed a total of 23 vessels to various clients compared with 22 the year before.

Moving forward, the group expects its 37km Kajang SILK Highway to continue to record accounting losses as the existing high financing and amortisation costs weigh it down. Nevertheless, an increase in traffic volume and the paring down of its borrowing costs will ensure its losses decline.

The group’s highway division is expected to remain cash flow positive as a result of the restructuring of long-term debt undertaken in 2008. As part of the restructuring, SILK ventured into oil and gas support services with the acquisition of AQL Aman Sdn Bhd, the holding company of Jasa Merin.

As at Jan 9, SILK had a market capitalisation of RM209 million based on its 486.1 million outstanding shares and closing price of 43 sen a share. The stock has risen more than 10% since a year ago and hit a 52-week high of 43.5 sen on Jan 3.

This story first appeared in The Edge Malaysia Weekly Edition, on January 16 - January 22, 2014.