Carimin Petroleum Bhd

Transcription

1 Carimin Petroleum Bhd New H.U.C. on the block By Cezzane See l cezzane@kenanga.com.my ; Ooi Mong Huey l monghuey@kenanga.com.my NOT RATED Price: Target Price: RM1.10 RM1.14 Carimim Petroleum Bhd (CARIMIN), which is en-route for a listing on 10 Nov, is a technical support services provider in the oil and gas industry. The group key activities are: (i) hook-up and commissioning (HUC), (ii) production platform system maintenance and upgrading services (PMUS), (iii) inspection and manpower supply services, (iv) equipment rental, and (v) minor fabrication services. We like CARIMIN for: (i) strong access to highly skilled human resources, (ii) long-term contract providing earnings visibility, (iii) official PETRONAS licenses holder and, (iv) strong track record. As at the LPD, the company has an order book of RM800.0m for offshore HUC and PMUS, and RM100.8m for manpower supply services which provide earnings visibility for the upcoming three years. We forecast FY15 and FY16 net profits of RM21.0m and RM23.3m, respectively, on the back of order book of RM900.8m and contract replenishment of RM30.0m-RM50.0m. While we do not assign any rating to the stock, we believe that CARIMIN should be valued at CY15 PER of 12.0x, at 20.0% discount to the target PER of 15.0x for Dayang Enterprise (DAYANG; OP; TP: RM4.52) which leads to a fair value of RM1.14/share. PETRONAS licenses holder. In Malaysia, services provider need to obtain specific licenses issued by PETRONAS in order to tender for contract in the oil and gas industry. CARIMIN is an official PETRONAS licenses holder for a supply range of services such as offshore HUC, production platform system maintenance and upgrading, manpower supply and minor fabrication services. Strong access to highly skilled human resources. CARIMIN has strong access to skilled workforces in oil and gas industry through its extensive in-house database of approximately 1,000 geoscientists, engineers, technicians, professionals, welders, riggers and other personnel. CARIMIN is also able to access third party database and industry contacts which allow them to fulfil its customers staffing needs on urgent basis. Longer-term contracts provide earning visibility. Currently, CARIMIN has an order book of RM900.8m (excluding optional extensions) which provides earning visibility up to The long-term contract provides the advantage of stable operating cash flows for CARIMIN, giving management the platform to further expand their business either vertically or horizontally within the oil and gas industry. Earnings forecasts. We forecast FY15 and FY16 net profits to register at RM21.0m and RM23.3m, respectively. Earnings drivers are: (i) current order book of RM900.8m, (ii) HUC contract replenishment of RM30.0m-RM50.0m, and (iii) stable earnings growth from manpower services division. The risks to CARIMIN include: (i) a downturn in the oil and gas sector that will delay contract flows, (ii) dependency on major customers, and (iii) inability to secure new contracts. Share Price Performance KLCI YTD KLCI chg -2.2% YTD stock price chg N.A. Major Shareholders Mokhtar Bin Hashim 31.8% Cipta Pantas 17.4% Platinum Castle Sdn Bhd 12.8% IPO Proceeds RM m Purchase of OSV 35.3 Development of fabrication yard 13.8 Repayment of bank borrowings 8.3 Working capital 5.3 Estimated listing expenses 4.1 Summary of IPO Enlarged Share Capital (RM m) IPO Price (RM) 1.10 Gross proceeds from Public Issue (RM m) 66.8 Market Capitalisation upon listing (RM m) Summary Earnings Table FY Jun (RM m) 2014A 2015E 2016E Turnover EBIT PBT Net Profit (NP) Core NP Core EPS (sen) Core EPS growth (%) NDPS (sen) BVPS (RM) Core RM Price/NTA (x) Net Gearing (x) Net Dvd Yield (%) PP7004/02/2013(031762) Page 1 of 9

2 1. Brief Introduction CARIMIN was incorporated in 1989 and its serves as a technical support services provider in oil and gas industry. The group key businesses are: (i) HUC, (ii) PMUS, (iii) inspection and manpower supply services, (iv) equipment rental, and (v) minor fabrication services. CARIMIN engages with few key customers such as Petronas Carigali, Shell, Murphy, Talisman, ExxonMbil, Newfield, Petrofac and etc. CARIMIN also owns a fabrication yard which located in Kemaman, Terengganu. 2. Investment Merit PETRONAS licenses holder. In Malaysia, services provider need to obtain specific licenses issued by PETRONAS in order to tender for contract in the oil and gas industry. CARIMIN is an official PETRONAS licenses holder for a range of services such as offshore HUC, production platform system maintenance and upgrading, manpower supply and minor fabrication services. The purpose of issuing licenses is to ensure the quality and qualification of the services provider which also serves as a barrier of entry. Long-term contracts and track record provide earnings visibility. CARIMIN has a wide base of clientele which includes established oil and gas players such as ESSO Malaysia/Exxon Mobil, Petronas and Petrofac and have long-term relationships with them. The long-term contract provides the advantage of stable operating cash flows for CARIMIN, giving management the platform to further expand their business either vertically or horizontally within the oil and gas industry. The good track record and reputation has enabled CARIMIN to continuously secure new or recurring contracts from existing customers as well as others oil and gas players. As at the LPD, the company has an order book of RM800.0m for offshore HUC, and PMUS and RM100.8m for manpower supply services. Order book breakdown manpower supply services Contract duration Contract value Customer Start date End date Extension Option (RM m) PC Myanmar (Hong Kong) Ltd Aug 2011 Aug year 3.0 Sarawak Shell Berhad Aug 2011 Aug years 2.0 Sarawak Shell Berhad Sep 2011 Sep year 2.0 Talisman (1) Dec 2011 Dec year 4.5 Malaysia LNG Sdn Bhd Dec 2011 Nov year 0.5 Murphy Oil Feb 2012 Feb year 3.0 Hess (Malaysia S6302) Limited Jul 2011 May 2014 (2) Petronas Jul 2012 Jun year 3.0 Petronas Chemical Aromatics Sdn Bhd Jul 2012 Jun year 0.5 Petronas Chemicals Derivatives Sdn Bhd Jul 2012 Jun year 0.5 Petronas Chemicals Fertiliser Kedah Sdn Bhd Jul 2012 Jun year 0.5 Petronas Management Training Sdn Bhd Jul 2012 Jun year 0.5 Petronas Technical Training Sdn Bhd Jul 2012 Jun year 0.5 Petronas Trading Corporation Sdn Bhd Jul 2012 Jun year 0.5 Petronas Chemicals Ethylene Sdn Bhd Jul 2012 Jun year 0.5 Petronas Chemicals MTBE Sdn Bhd Jul 2012 Jun year 0.5 Petronas Penapisan Terengganu Jul 2012 Jun year 0.5 Petronas Chemicals Vinyl Chloride (M) Sdn Bhd Jul 2012 Jun year 0.5 Petronas Chemicals Ammonia Sdn Bhd Jul 2012 Jun year 0.5 PETLIN (Malaysia) Sdn Bhd Jul 2012 Jul year 0.5 Petronas Maritime Services Sdn Bhd Jul 2012 Jul year 0.5 Petronas Chemicals Polyethylene Sdn Bhd Jul 2012 Jun year 0.5 Petronas Carigali Jan 2013 Jan Newfield Jan 2013 Jan HESS Apr 2013 Apr years 7.5 Petronas Carigali Apr 2013 Jun year 0.5 Petronas Carigali Jul 2013 Jun year 2.6 PC Myanmar (Hong Kong) Ltd Jun 2013 Jun Petronas Penapisan (Melaka) Sdn Bhd Jun 2013 Jun year 0.5 Newfield May 2013 May months 38.0 Petronas Dagangan Berhad Jul 2012 Jun year 0.5 Petronas Chemical Group Bhd Nov 2013 Jun year 0.5 HESS Oct 2012 Oct Petronas Technical Services Sdn Bhd Dec 2013 Dec years 2.0 JX Nippon Oil and Gas Exploration (Malaysia) Jan 2014 Jan year 1.0 SapuraKencana Energy Peninsula Malaysia Inc. Mar 2014 Mar SapuraKencana Energy Peninsula Malaysia Inc. May 2014 Apr PETROFAC (Malaysia-PM304) Limited Jul 2014 Oct months 2.0 Total Notes: (1) Comprising 3 contracts with cumulative contract value of RM4.5m. (2) Although this contract has ended, work order is still on-going on request basis. PP7004/02/2013(031762) Page 2 of 9

3 Order book breakdown - offshore hook up and commissioning/production platform system maintenance and upgrading services Contract duration Approximate work value Customer Start date End date (RM m) Petronas Carigali Peninsular Malaysia HUC Contract * May 2013 May ^ Outstanding value ** Notes: * Based on the contract duration as stated in the letter of award although the said contract was executed on 13 November The work is expected to commence in January ^ Work value as estimated by our management. **As at LPD, total contract value amounting to RM899.0m, of which RM92.4m of work orders have been rolled out. Strong access to highly skilled human resources. CARIMIN commenced operations as a provider of manpower supply services. The company has strong access to skilled workforces in oil and gas industry through its extensive in-house database of approximately 1,000 geoscientists, engineers, technicians, professionals, welders, riggers and other personnel. CARIMIN is also able to access third party database and industry contacts which allow them to fulfil its customers staffing needs on urgent basis. Strong track record. Since incorporation in 1989, CARIMIN has built a strong track record in providing: (i) manpower services since 1990, (ii) offshore HUC services since 2006, and (iii) rental services since To date, CARIMIN has delivered more than RM1.0b worth of projects. We believe its strong track record and reputation would help CARIMIN secure new contracts going forward. Ownership of a vessel and minor fabrication yard. CARIMIN has one minor fabrication yard which is located in Kawasan Industri Telok Kalong, Kemaman, Terengganu. In 2013, CARIMIN acquired an AHTS vessel CARIMIN Airis which is currently utilized to support HUC contract from Petronas which positioned CARIMIN as a one-stop HUC services provider. 3. Use of Proceeds Based on the IPO price, gross proceeds of RM66.8m will be raised from the Public Issue. The group has allocated: (i) 52.9% (c.rm35.3m) for purchase of Offshore Support Vessel, (ii) 20.6% to develop minor fabrication yard, (iii) 12.34% for repayment of bank borrowings (stands at RM43.9m currently), (iv) 7.9% for working capital, and (iv) 6.2% for listing expenses. Details of IPO IPO Price RM m Issue Shares for subscription by: Malaysian Public via balloting 11.7m Identified investors via private placement 46.0m Eligible Directors, employees and persons who have contributed to the success of our Group 3.0m 5.9m Offer Shares for subscription by: Identified investors via private placement 5.9m Total enlarged issue and paid-up share capital after Listing 233.9m Market capitalisation at our IPO Price RM257.3m Use of Proceeds Details of utilization of proceeds Estimated timeframe for utilization (RM m) % upon listing Purchase of offshore support vessel 12 months % Development of minor fabrication yard 18 months % Repayment of bank borrowings 6 months % General working capital 12 months % Estimated listing expenses 3 months % Total gross proceeds % PP7004/02/2013(031762) Page 3 of 9

4 4. Industry Outlook Cautious on domestic upstream oil and gas sector outlook. In conjunction with Petronas 2QCY14 results, its president and CEO, Tan Sri Shamsul Azhar Abbas guided that Petronas could reduce CAPEX in 2015 which imply that there could be slower contract roll-out in next year. We view this statement as mildly negative for the upstream O&G players as the slowdown in contract roll-out would negatively affect their earnings. We expect that capex classified projects (i.e. new central processing platforms (CPP) and fields (new PSCs)) might see a longer-than-expected roll-out period whilst maintenance and rejuvenation (brownfield/risk service contracts (RSC)) which are classified as Opex) efforts could see more work scopes in the medium-term as Petronas looks to maintain asset integrity through maintenance. We understand that any failure in securing new contracts due to delay in contract awards would negatively affect CARIMIN earnings sustainability. 5. Financial Analysis CARIMIN revenue grew at a 3-year CAGR of 15.7% from RM158.4m in FY11 to RM245.6m in FY14. The hike in revenue in FY12 was mainly due to substantial work billing from Sarawak/Sabah HUC contract. The revenue has been normalised to above RM200.0m level in the consecutive year after work billing slowed down. CARIMIN core net profit rose substantially from RM9.5m in FY11 to RM21.9m in FY14 at CAGR of 32.0% mainly due to improvement in operational efficiency (core net profit margin of 6.0% in FY11 vs 8.9% in FY14). Historical sales and earnings performance FY11 FY14 Moving forward, we expect: (i) the FY15-16 total revenue to grow by 34.5% and 6.1% to RM330.4m and RM350.4m, respectively and (ii) FY15 and FY16 net profit to register at RM21.0m and RM23.3m, respectively. Drivers for FY15-16 earnings are: (i) current order book of RM900.8m, (ii) HUC contract replenishment of RM30m-RM50m, and (iii) stable earnings growth from manpower services division. The section is intentionally left blank. PP7004/02/2013(031762) Page 4 of 9

5 6. Valuation/Recommendation We value CARIMIN at RM1.14/share based on CY15 PER of 12x (20% discount to the 15x PER ascribed to bigger industry peer like DAYANG given its smaller order book of RM900.0m vs. DAYANG s order book of RM4.5b. We believe the valuation basis is fair as CARIMIN is valued at similar FBMSC s valuation which is at 12x. Malaysian Oil & Gas Sector Comparisons Company Price (RM) Market Cap (RM m) PER(x) Est. Div. Yld. His. ROE His. P/BV NP Growth (%) Target Price (RM) CY13 CY14 CY15 (%) (%) (x) CY14 CY15 ALAM , MP BARAKAH OP COASTAL , OP DAYANG , OP DIALOG , MP GASMSIA , MP MHB , UP PANTECH OP PCHEM , OP PERDANA , OP PERISAI , OP PETDAG , MP PETGAS , MP SKPETRO , OP UZMA OP WASEONG , OP YINSON , UP Simple Average Weighted Average Source: Kenanga Research Rating 7. Risks Downturn in the oil & gas sector. CARIMIN S business are highly dependent on the level of activities and the corresponding capital spending by oil and gas companies, which are significantly affected by: (i) crude oil price movements and (ii) cyclicality in the oil and gas services industries, which are strongly correlated to general economic, social and political conditions of the global economy. In the event of prolonged reduction in oil and natural gas prices, these may depress the level of activity in offshore oil and gas exploration, the development and production activity. Dependent on few major customers. CARIMIN is dependent on a few major customers Petronas Carigali, Petrrofac, ExxonMobil and Newfield which accounted for total > 90.0% of the group FY14 revenue. Losing these major customers may negatively affect CARIMIN s future earnings. Inability to secure new contracts. Delay in the new contracts roll-out or inability of CARIMIN to meet customers prequalification requirements may cause CARIIMIN to lose the opportunity to bid for future contracts and consequently affects the contract order book. Failure to obtain new contacts or renew existing contracts would materially and adversely affect earnings and future growth plans. PP7004/02/2013(031762) Page 5 of 9

6 8. Appendix Company history and business overview CARIMIN was founded in 1989 and commenced operations as a provider of manpower supply services. Since then, the group have developed their business to encompass offshore hook-up and commissioning, production platform system maintenance and upgrading services, minor fabrication services and equipment rental services. (i) Offshore hook up and commissioning, and production platform system maintenance and upgrading services Offshore hook up and commissioning Normally carried out in an offshore greenfield development where a new platform is installed. Carimin has in-house capabilities to undertake offshore hook up and commissioning projects. Completed and on~going offshore hook up commissioning projects Project name Customer Work period* Approximate work value (RM m) Offshore hook up and commissioning for SK309/311 Phase 1 Murphy Gas Development Project Oil Hook up and commissioning for PM3 CAA and PM 305 Talisman Hook up and commissioning of compression facilities, retrofit Newfield and hose tie-in at East Belumut platform Hook up and commissioning of West Belumut wellhead Newfield platform Hook up and commissioning of Petronas Carigali facilities for Petronas to 2012 KNJC-T Carigali Provision for hook-up commissioning of Petronas Carigali Petronas ^ facilities (Sarawak/Sabah HUC Contract) Carigali Present Hook up and commissioning services for West Desaru Early Petrofac Production System (EPS) Project, Block PM304 Hook up and commissioning for ERB West Field Drilling Petronas Project Carigali Note:- ^ A total value of work order carried out as at LPD which mainly involved production platform * Period system of maintenance time work was and carried upgrading out. Usually services this are will further go beyond elaborated contractual period of time due to clients' extended scope of work. Production platform system maintenance services CARIMIN provides services to rectify faults that affect systems installed on a production platform, including piping, pumps, motors, transmitters and structural works. Production platform system upgrading services Currently, CARIMIN focus on the production platform's process piping systems. The main activity involved is replacement of old, corroded pipes and equipment at the production platform with new pipes and equipment. (ii) Manpower supply services CARIMIN provides manpower supply services to: (i) PSC operators and contractors, (ii) engineering and fabrication companies, (iii) oil and gas supporting service providers, and (iv) other upstream oil and gas companies. Carimin provides manpower services to both local and overseas oil and gas players. (iii) Minor fabrication services CARIMIN provides minor fabrication services for third-party customers and support the offshore hook up and commissioning, and production platform system maintenance and upgrading services segment. The minor fabrication yard located in Kawasan Industri Telok Kalong, Kemaman, Terengganu. (iv) Equipment rental Equipment rental is a new segment which started since FY11 when the company venture into welding equipment rental services. For FY13, revenue from this segment accounted for 0.01% of total revenue. (v) Marine services CARIMIN owns 2 assets 1 AHTS (Carimin Airis) and 1 AWB (SK Deep Sea). As at LDP, the vessels are being utilized to support offshore hook up and commissioning, and production platform system maintenance and upgrading services segment. PP7004/02/2013(031762) Page 6 of 9

7 Group Business Model Key Management Team Key management team Source: Company PP7004/02/2013(031762) Page 7 of 9

8 Carimin Petroleum Berhad Income Statement Financial Data & Ratios FY Jun (RM m) 2011A 2012A 2013A 2014E 2015E FY Jun (RM m) 2011A 2012A 2013A 2014E 2015E Revenue Growth EBITDA Turnover (%) NA Operating Profit EBITDA (%) NA Other Income Operating Profit (%) NA Interest Exp (0.4) (0.3) (0.2) (0.9) (0.9) PBT (%) NA Associate Core Net Profit (%) NA Exceptional Items PBT Profitability (%) Taxation (6.5) (6.6) (8.8) (7.3) (8.2) EBITDA Margin Minority Interest Operating Margin Net Profit PBT Margin Core Net Profit Core Net Margin Effective Tax Rate Balance Sheet ROA NA NA FY Jun (RM m) 2011A 2012A 2013A 2014E 2015E ROE NA NA Fixed Assets NA NA Intangible Assets NA NA DuPont Analysis Other FA NA NA Net Margin (%) Inventories NA NA Assets Turnover (x) NA NA Receivables NA NA Leverage Factor (x) NA NA Other CA NA NA ROE (%) NA NA Cash NA NA Total Assets NA NA Leverage Debt/Asset (x) NA NA Payables NA NA Debt/Equity (x) NA NA ST Borrowings NA NA Net Cash/(Debt) NA NA 41.4 (66.6) (53.9) Other ST Liability NA NA Net Debt/Equity (x) NA NA LT Borrowings NA NA Other LT Liability NA NA Valuations Minorities Int. NA NA EPS (sen) Net Assets NA NA NDPS (sen) BV (RM) NA NA Share Capital NA NA NTA (RM) NA NA Reserves NA NA PER RM Equity NA NA Net Dividend Yield PBV NA NA Cashflow Statement P/NTA NA NA FYJun (RM m) 2011A 2012A 2013A 2014E 2015E Operating CF NA NA Investing CF NA NA (56.6) (104.5) (20.0) Financing CF NA NA (0.9) Change In Cash NA NA (0.4) (28.3) 12.7 Free CF NA NA (42.0) (69.2) 21.7 Source: Kenanga Research PP7004/02/2013(031762) Page 8 of 9

9 Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM : A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). MARKET PERFORM : A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERPERFORM : A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). Sector Recommendations*** OVERWEIGHT : A particular sector s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). NEUTRAL : A particular sector s Expected Total Return is WITHIN the range of 3% to 10%. UNDERWEIGHT : A particular sector s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage. This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia Telephone: (603) Facsimile: (603) Website: Chan Ken Yew Head of Research PP7004/02/2013(031762) Page 9 of 9