Scomi Energy Services Bhd
(May 22, 41 sen)
Upgrade to hold with a lower target price of 41 sen from 50 sen: Scomi Energy Services fourth quarter ended March (4QFY15) net profit came in at RM15.5 million, bringing its FY15 net profit to RM77.1 million, making up of 93% of our earnings forecast.

FY15 revenue grew by 10.2% on the back of additional revenue from TNB Fuel Services Sdn Bhd (TNBF). However, earnings dropped 5.8% as both oilfield services (OS) and marine services (MS) divisions’ margins suffered, declining from 10.9% to 9.2%.

Scomi’s revenue was down by 8.1% mainly attributable to the lower activity level in the OS division coupled with lower revenue from the TNBF contract and utilisation from offshore support vessels.

However, both divisions’ margin improved from 7.8% to 10.7% as a result of a more favourable product mix from the OS division coupled with improved operating efficiencies in MS operations in Indonesia.

Despite that, net profit was still lower at 20.4% quarter-on-quarter due to a higher tax impact.

We cut our FY16 earnings forecast by 27% as we adjust for lower operating margin.

We have also introduced our FY17 earnings at RM87.5 million, which is a mere 2% annual growth.

Management has indicated that the outlook of both the OS and MS divisions will be challenging due to an uncertain market environment as well as a poorer coal production projection in Indonesia.

Given the lack of catalyst, we lower our target price to 41 sen from 50 sen based on unchanged price-earnings ratio of 11 times on rolled over calendar year 2016 earnings per share.

Given the limited downside based on our revised valuation, we upgrade to “hold”. — BIMB Securities Sdn Bhd, May 22

This article first appeared in The Edge Financial Daily, on May 25, 2015.