This article first appeared in The Edge Malaysia Weekly on August 26, 2019 - September 1, 2019
EA Technique (M) Bhd sees opportunities in Indonesia as the growing demand for petroleum products among its 240 million population fuels the need for more imports from other countries, including Malaysia. The marine transport and services company believes it can step up its services to the state-owned petroleum company PT Pertamina (Persero).
“We have increased our tonnage for Pertamina from Tanjung Bin from one shipment per month to two,” says EA Technique managing director Datuk Abdul Hak Md Amin.
“I believe it will increase imports of unleaded gasoline and marine gas oil from us,” he adds, his confidence evidently stemming from talks with the company.
Once a member of the Organization of Petroleum Exporting Countries, Indonesia’s ageing fields, lack of investment in refineries and petrochemical plants, and rapid development have led to demand for petroleum products exceeding its production capacity since the turn of the century.
Some estimates put the country’s refining capacity at just slightly above one million barrels per day (bpd) — about a third less than demand, necessitating the import of petroleum products. As Malaysia increases investments in its refining and petrochemical production as well as storage and trading hubs, it has been able to supply petroleum products and petrochemicals to other countries in the region, including Indonesia, which is a major buyer.
The development of the Pengerang Integrated Complex in Johor by Petronas will increase Malaysia’s refining capacity to more than 900,000 bpd. And there are other smaller projects that will take refining capacity to more than 1.1 million bpd.
Hak says EA Technique intends to expand its core tanker business, but any expansion will be based on the contracts secured — with a minimum tenure of three years — from oil majors rather than speculative reasons. “We are prudent on capacity expansion as we only buy or build ships once long-term contracts are secured. We do not build or buy ships based on speculation because we do not have deep pockets.”
Currently, four new vessels — three tankers and a tug boat — are being built for the company. The tankers have been chartered by PETCO Trading Labuan Co Ltd, a Petronas trading arm, for a total contract value of RM239.12 million over a five-year period.
Two of the tankers are being built at the Ningbo Zhenhe Shipyard in China at a cost of US$16.28 million each while the third is being built by EA Technique’s own Johor Shipyard & Engineering Sdn Bhd (JSE) at a cost of US$16.9 million.
The tugboat is chartered to a Petronas Floating LNG 2 (PFLNG2) project on a two-year contract worth RM13.54 million. The vessel is being built at JSE’s yard in Hutan Melintang, Perak, at a cost of RM19 million.
Upon completion, the four vessels will increase EA Technique’s fleet to 45, and the contracts are expected to contribute positively to its earnings and net tangible assets for the financial year ending Dec 31, 2021 (FY2021) and beyond.
According to Hak, the contracts secured with PETCO and PFLNG2 had boosted EA Technique’s order book to RM802.89 million as at June, with optional extension periods worth RM545.37 million in the contracts.
“So at the moment, our order book is about RM1.35 billion, including the option periods. But we are also tendering for new projects. We have tendered for about RM1 billion worth of contracts so far this year, and we have secured RM600 million so far.”
For the first quarter ended March 31, the marine transport business contributed 67% to the company’s revenue and almost 75% of its earnings before interest, taxes, depreciation and amortisation.
At last Thursday’s price of 42.5 sen per share, the counter is too cheap to ignore, according to Public Investment Bank research analyst Nurzulaikha Azali, as it is trading at only 4.7 times forecast FY2020 earnings per share (EPS) of nine sen.
In a June 25 research report, Nurzulaikha says the stock’s price-earnings ratio of 4.5 times at the time was at a steep discount of more than 50% to her valuation of 10 times FY2020 EPS.
“Our ‘outperform’ rating on EA Technique is affirmed with a new target price of 90 sen based on 10 times its FY2020 EPS. EA Technique is currently trading at only 4.5 times forward earnings, the steep discount (more than 50%) deeming forward valuations highly inexpensive,” she says in the report.
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