KUALA LUMPUR (Sept 23): Shares of TAS Offshore Bhd rose 7.47% at mid-morning on Tuesday on the news that the company had partnered with a Chinese businessman Chan Baihang to build and sell offshore support vessels (OSV).

 

As of 10.28am, the counter was traded at RM1.15, up 8 sen or 7.47% with 5.8 million units changed hands.

 

The counter had earlier climbed as high as RM1.16 before giving up its gain. It was the number ninth gainer across the exchange.

 

In an announcement to Bursa Malaysia yesterday, TAS Offshore said its wholly-owned subsidiary, TA Ventures (L) Ltd has entered into a 60:40 joint venture (JV) with Chan, to build and sell offshore support vessels in a RM122 million.

 

Under the JV, TAS will contribute 60% of the total estimated cost while Chan will contribute the remaining 40%.

 

Chan owns transportation companies, a construction firm and is also involved in chartering, building and selling OSV.

 

The joint venture is expected to be completed by the end of 2016.

 

Despite this, in a note to client on Tuesday, RHB Research cuts TAS Offshore's financial year 2015 (FY15) net profit by 8% by assuming a lower margins after a discussion with the company's management.

 

"In view of our lower earnings growth expectation, we also revise down our financial yar 2015 (FY15)  price to earning ratio (PER) to 9.5 times from 12 times.

 

"Meanwhile, our fair value (FV) declines to RM1.60 from RM2.19 as well," RHB said, however, they are maintaining buy call on the counter.

 

"Note that its 9.5 times FY15 PER is a 35% discount from its 4-year average PER of 14.7 times, which implies a low 3-year average price/earnings to growth (PEG) ratio of 0.21 times.

 

"We still the company’s fundamentals, underpinned by growing demand for OSVs in the O&G sector, coupled with a healthy orderbook," it added.

 

RHB said as TAS’ build-to-stock (BTS) business model requires intensive investments in capital, this JV would allow the company to achieve this objective while minimising the risks of exposure in this operation.

 

"As the vibrant oil and gas (O&G) sector requires the speedy supply of OSVs with shorter delivery periods, the BTS model has become increasingly popular in the shipbuilding industry," it said.

 

RHB also noted that the company is currently building six more OSVs, which would be ready for sale by next year.

 

Commenting on the net cash level, RHB said as at end May 2014, the company had total net cash and cash equivalent of RM36.5 million and short-term borrowings of RM35.7 million, which implies a marginal net cash of RM800, 000.

 

"This is in comparison with its total cash and cash equivalent of RM42.1 million and short-term borrowings of RM18.7 million in end-May 2013, which reflected a net cash pile of RM23.4 million.

 

"As the company boasts of a prudent management team, it is carefully exploring opportunities in the industry – and we believe that its decision to enter into a JV with its China partner is a positive move," RHB added.