Edge Weekly Bio Osmo takes first step into oil and gas

by **Cals** Tue 17 Jun 2014, 01:14

Edge Weekly Bio Osmo takes first step into oil and gas

Business & Markets 2014

Written by Janice Melissa Thean of theedgemalaysia.com

Monday, 16 June 2014 14:51

AILING water bottler Bio Osmo Bhd is hoping that its first foray into the oil and gas sector will help it return to profitability after having made losses for the past six years.

In an announcement to Bursa Malaysia over a week ago, the company said it had purchased a 49% stake in offshore integrated service provider Bayam Enterprise Sdn Bhd for RM17.15 million.

Bayam provides a range of services to the O&G sector, including catering, hospitality, healthcare and logistics.

“With the acquisition of Bayam, Bio Osmo is expected to return to the black by the end of this financial year,” executive director Shahrizal Hisham Abdul Halim tells The Edge.

“We want to diversify into the O&G sector, but we want to take baby steps. This complements what we are doing now, which is also in the food and beverage area or more rightly, support services. So, this streamlines our business.

“This is Bio Osmo’s first step into the O&G sector. The future is open, so we will build this part of the business first and when the opportunities come up in the future, we will move in. The O&G sector continues to grow, which means any business associated with it will grow in tandem,” says Shahrizal.

At present, Bayam has seven contracts to service offshore platforms in Malaysia — three with US-based ExxonMobil, three with SapuraKencana Petroleum Bhd and one with Canada-based Talisman Energy Inc.

The contracts typically last three years and could be extended for another one-plus-one years.

According to Bio Osmo’s group chief operating officer Sebastian Chang, who was also present at the interview, Bayam has raked in RM40 million from the seven contracts.

“We have only 10% market share now and we are targeting 40% to 50% in a few years’ time. Over the next three years, we are looking at very strong double-digit growth in terms of contract value,” he says.

Bio Osmo has been in the red for several years with its primary water bottling business suffering from thin margins.

In its first quarter ended March 31, 2014, the company’s net loss worsened to RM1.53 million from RM28,000 in the previous corresponding period. Revenue declined to RM640,000 from RM3.92 million previously.

For the 18-month period ended Dec 31, 2013, net loss widened to RM19.16 million from
RM12.38 million in the previous corresponding period. Revenue was RM15.86 million, little changed from RM15.98 million previously.

Last year, Bio Osmo cleaned house and straightened its balance sheet. As at March 31 this year, it had RM2.13 million in cash and cash equivalents and a total of RM4.9 million in short-term borrowings. Net assets stood at RM43.23 million.

Bayam, meanwhile, had RM7 million in net assets as at end-2013 (see table). There is a profit guarantee incorporated into its deal with Bio Osmo, whereby its FY2014 profit after tax is not to fall below RM5.5 million.

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Bio Osmo will pay 5% of the purchase price on the date of the conditional share sale agreement (SSA) and another 13.37% upon the completion of the SSA.

The remaining 81.63% or

RM14 million will be paid in scheduled instalments up to December 2014 based on the profit guarantee.

There has been little to no investor reaction to the deal thus far with Bio Osmo’s shares closing at

15.5 sen last Tuesday, giving it a market capitalisation of RM70.58 million.

The stock saw heavy trading early this year when Tanjung Offshore Bhd’s managing director Harzani Azmi emerged as a substantial shareholder with a 28% stake in the company through a privately held company.

The shares leapt more than 60% from late December 2013 to a 52-week high of 23.5 sen on Jan 13, but later stabilised. It has been trading sideways for four months now.

Bio Osmo has no intention of selling its water bottling business now, although there have been reports that it is up for sale at

RM20 million. However, the company admits that with its plan to grow in the O&G sector, the water bottling business may be marginalised.

Early last month, reports citing sources said Bio Osmo could see RM200 million of O&G fabrication assets injected into it. But Chang says that proposal is “off the table”.

“Some other new venture may come along. We are not going to stop with Bayam. We will grow either through Bayam or through other M&A,” he says.

The company plans to focus on support services for starters, which it says is a niche but neglected segment in which the large O&G players are not active.

“So, let us go into this area where we don’t have to compete with the big boys,” Chang remarks.

This article first appeared in The Edge Malaysia Weekly, on June 9, 2014.[/size]