This article first appeared in The Edge Malaysia Weekly on August 10, 2020 - August 16, 2020

T7 Global Bhd is not likely to be at the top of the minds of investors amid the current market volatility and exuberance as it is mainly involved in the oil and gas (O&G) and aerospace sectors, both of which have seen better days.

While executive director Tan Kay Vin acknowledges that the O&G and airline industries are at a low point, he believes the international oilfield service provider’s prospects are still good.

“Our company’s strength is stability. Since 2015, although oil prices have come down, our financial performance is still growing steadily as we have adapted well to the major changes in the business landscape,” he tells The Edge in an interview.

The group’s revenue is supported by long-term O&G supply, maintenance and service contracts, he points out. As at end-March, its order book and tender book stood at RM1.7 billion and RM2 billion respectively.

“O&G is a necessity. Greenfield players may not be in good shape now, but jobs in other areas must go on. As far as T7 Global is concerned, we are confident we will be able to secure a few new jobs later this year. Things will get better and we foresee a better outlook for our performance,” says the 29-year-old Kay Vin.

T7 Global generated a net profit of RM12.51 million in the financial year ended Dec 31, 2019 (FY2019) on revenue of RM233.48 million (see bar charts). Last Friday, the counter had declined 16.5% year to date to close at 38 sen, giving the company a market capitalisation of RM195.51 million.

“Our share price has very much recovered to pre-Covid-19 levels. We expect an upward share price performance going forward,” says Kay Vin.

According to the group’s chief operating officer Jim Tan Kay Zhuin, T7 Global will continue to focus on the energy sector this year, primarily the O&G business. “We have consolidated our approach to key service areas in the industry, considering the Covid-19 and current oil price situation,” says Kay Zhuin, who is Kay Vin’s older brother.

He explains that capital expenditure (capex) and investments in the industry are likely to slow down with most activities coming under scrutiny. Hence, many O&G operators will shift their focus to controlling operating expenditure (opex).

“T7 Global — a service provider in the areas of offshore maintenance, hook-up and commissioning, and well services — will see critical works being carried out to sustain existing operations,” says the 31-year-old, who oversees the group’s operations and is primarily involved in the energy business.

T7 Global is 17.71% owned by its executive deputy chairman and major shareholder Tan Sri Tan Kean Soon, the father of Kay Zhuin and Kay Vin.

Kay Zhuin highlights that T7 Global secured a few jobs in the first half of the year, with a big chunk of its order book derived from mobile offshore production unit (MOPU) leasing contracts. The handful of local players in the MOPU segment include MISC Bhd and T7 Global.

In 2005, T7 Global secured its first MOPU — a converted unit that was leased to UK-based energy services firm Petrofac Ltd until 2014. Earlier this year, it announced a 27-month engineering, procurement, construction, installation and commissioning (EPCIC) of a MOPU, for a leasing period of 10 years ending 2032, to Petronas Carigali Sdn Bhd.

“This type of project is not too common. An O&G operator has to take various factors into consideration before deciding on a field development that revolves around a MOPU or FPSO (floating production storage and offloading unit),” says Kay Zhuin.

He adds that T7 Global is a service provider primarily in the maintenance and after-service market. If times are good, its clients will spend more and if times are bad, they will cut spending. But maintenance still needs to be carried out.

“If the market situation recovers, that is good for everybody. If our client decides to spend, that means more jobs for us. But we will remain prudent in our approach. Considering the rise in renewable energy, oil prices may not return to the good times in the near future,” he says.

Tanjung Offshore Services Sdn Bhd CEO Azman Yakim notes that the oil price at the US$40 to US$50 per barrel level is gradually being accepted by the Malaysian O&G community. Most operators have found ways to move towards a certain sustainability. Tanjung Offshore Services is an O&G company that is wholly owned by T7 Global.

“We have carefully conditioned ourselves to cope with such an environment for the past few years and this has become a new normal for our industry. For T7 Global, we remain steadfast in our approach and the contracts secured have helped us. However, if the oil price further depresses, it may be tough for everybody,” he says.

Azman adds that the new normal has resulted in O&G companies cutting capex. But fortunately, opex has to be maintained at a production level. “We believe the MOPU/FPSO concept is an interesting way forward. Our clients will have less risk and financial exposure ... ultimately, the opex model will justify their cash flow over time. Moreover, marginal field economics may not justify the conventional fixed platform development, which is very costly. MOPU/FPSOs present a more viable option,” he explains.

For its hook-up and commissioning segment, T7 Global has secured a four-year contract to support Carigali Hess Operating Company Sdn Bhd for the provision of onshore fabrication, offshore hook-up and commission for infill flowlines. “The greenfield projects require new investment, which involves capex. But for us, we are quite fortunate because most of our projects are in brownfield developments, which involve more opex. There is some slowdown in opex too, but it is not significant,” says Azman.

On the group’s aerospace venture, Kay Vin says it is now exploring opportunities to provide metal surface treatment services to other industries that require such services, such as the automotive and semiconductor sectors. To recap, T7 Global’s aeroplane parts manufacturing plant in Serendah, Selangor, became fully operational late last year.

The factory was supposed to conduct secondary processes for metal parts in airplanes before they are assembled into bigger components. This includes parts treatment, metal coating and painting, non-destructive testing and other chemical processes.

But given that the aviation industry has been battered by the pandemic, Kay Vin says T7 Global will now shift its focus to the electrical and electronics (E&E), automotive and semiconductor industries. “Our Serendah plant is meant for aerospace. That is still our plan. But we never expected Covid-19 to hit the aviation industry. It will be silly for us to just wait for contracts from aerospace clients. We have to be creative and innovative, move on and survive, so we have to look out for new opportunities,” says Kay Vin, who is also vice-president of aerospace and corporate affairs.

“I do not foresee the travel industry stabilising anytime soon. Nonetheless, we are not sitting and doing nothing while waiting for the industry to recover. We are confident we will still be able to achieve the target set by the group in late 2019,” he adds.

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