KUALA LUMPUR: Now that Tanjung Offshore Bhd (fundamental score: 1.95, valuation score: 2.4) and Paris-based Bourbon SA have terminated plans for a reverse takeover (RTO), it is back to the drawing board for the former which is in need of a core business.

Tanjung, which sold off its marine services business in 2012, would have seen the injection of 18 offshore support vessels (OSVs) and five anchor handling tug supply vessels had the RTO gone through. In total, it would have gained controlling interests of 61 vessels.

But with the decline of crude oil prices over the last few months, valuations across the oil and gas (O&G) sector are looking cheaper, allowing the company the chance to cherry pick its target acquisitions, according to group adviser Datuk Harzani Azmi.

“We are still on the lookout for a world-class company that will give us the extra edge over other players,” Harzani told The Edge Financial Daily in an interview.

While the company had previously owned and operated 16 OSVs, Harzani said that it is no longer looking to be a solely Malaysian-based player.

“We are hoping that [any future] acquisition will give us a quantum leap to at least a regional player. That is the direction,” said Harzani.

“We have got the cash and we have cleared out debt. We have zero gearing so we are going into 2015 very strong.”

As at Sept 2014, Tanjung’s cash and bank balances stood at RM35.96 million, compared with RM26.6 million a year ago. Although it has no borrowings per se, short term payables came to RM31.45 million as at Sept 2014.

The company is not eyeing any asset in particular, but when asked if it will stick to what it knows, that is, OSV operations, Harzani said he is open to any quality O&G acquisitions, including exploration assets. It has not set a timeline to make its acquisitions.

In the meantime, while Tanjung sits without a core business, Harzani is confident that its remaining businesses in engineering equipment, equipment maintenance services, drilling and production platform services will be sufficient to tide it over for a while.

“Just on our current position we can ride whatever turmoil the country is facing in the O&G industry,” said Harzani, adding that it has a RM500 million order book which will keep it busy for some two years.

But while Tanjung has pared down its debt and is looking to take advantage of the present low price climate, it could run into similar problems that shelved the Bourbon deal — valuations.

The RTO had been drawn based on a 70.8 sen per share valuation when announced mid-2014, where Tanjung’s share price had been trading just under 60 sen.

But while crude oil prices have more than halved since August last year, so too has its share price which closed at 34 sen yesterday.

“At what price or premium will Bourbon’s shareholders allow them to come in? And it is the same for us, or it might be bad for our minority shareholders. Now because of the market situation, which is nobody’s fault, the price has gone below par for us,” Harzani explained. Unable to cut a fair deal for either party, both sides agreed to mutual termination.

Similarly, as Tanjung ventures forth in the hunt of new assets, who would be willing to sell them quality assets at poor valuations?

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. A score of 0 means weak fundamentals and a score of 3 means strong fundamentals. Meanwhile, the valuation score determines if a stock is attractively valued or not, calculated based on historical numbers. A score of 0 means valuations are not attractive. Vice versa, a score of 3 means valuations are attractive.

This article first appeared in The Edge Financial Daily, on January 14, 2015.