KUALA LUMPUR: Boustead Heavy Industries Corp Bhd (BHIC) is looking to expand its shipbuilding capabilities into the offshore service vessel (OSV) segment apart from having a focus on military ship construction.

BHIC (fundamental: 0.45; valuation: 1.8) is currently negotiating an order to build three OSVs.

Remaining tight lipped on the possible deal, BHIC executive deputy chairman and managing director Tan Sri Ahmad Ramli Mohd Nor said BHIC, of which the Armed Forces Board Fund is the largest indirect shareholder, will be designing and building its first OSV with full local content.

“There are a lot of OSVs operated by local companies; now we have been tasked by the government to really improve on our status in the design and engineering of the vessel. We have worked on a design and it is acceptable by Petronas (Petroliam Nasional Bhd),” he told a press conference after the company’s annual general meeting yesterday.

When asked about the prospects for its fabrication segment that caters mainly to the oil and gas industry, Ahmad Ramli said there are still fabrication works for grabs, despite a slowdown in the sector.

According to BHIC executive director David Berry, there are some replenishment to be done on certain existing offshore sites.

“It’s not just for new build on new site, some of the old sites are at a point where they need some refurbishments or replacements. What the oil majors have done is cut down on new spend for capital expenditure but they don’t necessarily want to cut back on existing production,” said Berry.

Ahmad Ramli noted that Petronas has a few fabrication-related tenders in the pipeline and BHIC is actively pursuing these contracts.

Meanwhile, he highlighted that BHIC’s current focus now is on its military shipbuilding capabilities as the company had a bitter experience in commercial shipbuilding in 2008. “But we can’t completely ignore commercial.

“We are smarter now. We only work on projects that are niche in an area and that we know we can control cost and the risk is minimal. Hopefully, when things are better in the commercial world, we’ll be well positioned as it was a bitter and costly experience,” said Ahmad Ramli.

Currently, military shipbuilding takes up 80% of the group’s ship construction business, while the remaining 20% is on the commercial side. 

BHIC’s chairman Tan Sri Lodin Wok Kamaruddin said that in the next four to five years, the ratio would be 70:30.

“But this will depend on the contracts that we have with the armed forces, particularly the navy,” he said adding that the company’s priority is not to service the military while ensuring that BHIC will be able to make revenue with good margins.

“In all, we are looking forward to a much brighter future in the next several years. We are quite focused in terms of delivering our customers, especially the military.

“We will remain focused on shipbuilding, ship repair, maintenance of ships which also includes the submarine and also repair and maintenance for aircrafts,” added Lodin.

Currently BHIC has a combined order book of RM10 billion, including those from its associates and subsidiaries. 

The bulk of it comes from the RM9 billion contract for six Littoral Combat Ships (LSC) for the Royal Malaysian Navy, which the company has recognised earnings from, while the remaining is from repair, maintenance and overhaul activities. 

The first LCS is expected to be delivered to the government in 2019.

For its financial year ended Dec 31, 2014, BHIC registered a profit after tax of RM17.9 million from RM3.16 million a year before. This was on the back of RM332.82 million in revenue in 2014 from RM319.05 million a year earlier.

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This article first appeared in The Edge Financial Daily, on April 3, 2015.