Thursday 28 Mar 2024
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Scomi Energy Services Bhd
(July 9, RM34.5 sen)
Upgrade to buy with a target price of 41 sen:
We met up with Scomi Energy Services Bhd’s (SES) management recently, chaired by chief executive officer (CEO) Shah Hakim Zain, ahead of the upcoming results next month for an update on the company’s prospects and growth direction moving into the new financial year.

 

Below are the key highlights from the meeting that took place. We are maintaining our earnings projection and target price at 41 sen based on 11 times price-earnings ratio (PER) on unchanged calendar year 2016 (CY16) earnings per share (EPS).

Management shared that domestic oilfield revenue contribution will remain low due to lower rig counts and activities in Malaysia (total rig count of nine of which five are Petroliam Nasional Bhd’s [Petronas]). Petronas’ contributions are expected to decline from 16% to average around 8% of company revenue.

We expect to see the Middle East, Brazil and Argentina pick up in activities moving forward.

Management aims to improve its gross profit margin from the current 24.4% to a range of 26% by adopting more stringent controls on its chemical and logistic costs.

The outlook for the marine segment remains gloomy from the impact of low coal prices, hence affecting the volume of coal tonnage transport.

As we understand, Petronas has asked SES to relook at its project costing. Management has resubmitted a new design plan and it is in the process of being reviewed by Petronas for approval.

Management assures that at a lower oil price of US$55 (RM208.45) per barrel, Ophir RSC is still worthwhile to be given the green light based on the revised design plan. Ophir’s first oil timeline by the second half of 2016 remains unchanged.

SES is looking at a few marginal field developments locally as well as India and Indonesia via partnerships.

SES’ stock performance has been affected no thanks to a series of unfortunate events, from the tumble in oil prices as well as an adverse domestic and international economic environment. However, we view SES as a beneficiary of the stronger US dollar as 80% of its revenue is denominated in the currency.

SES will also benefit from its wide range of new products and services offering via new acquisitions or joint ventures, hence further increasing its global market footprint.

We are maintaining our financial year 2016 (FY16)/FY17 earnings projections at RM86.2 million and RM87.5 million as we prefer to remain conservative given the current ongoing sector headwinds for the year.

We maintain our target price at 41 sen based on 11 times PER on unchanged CY16 EPS.

Given that the current stock price has been dragged down by a series of misfortunes and is presently at more than 10% upside, we upgrade Scomi Energy to “buy”. — BIMB Securities Research, July 9

 

This article first appeared in The Edge Financial Daily, on July 10, 2015.

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