Wednesday, December 10, 2014

The O&G Stocks ... Can Load Up Now?

As oil prices continue to slide, industry observers foresee that the selling pressure on Malaysia oil and gas counters will not abating yet.

There could be another round of selling pressure among investors with short to medium term view of up to six months from Dec 2014 especially on financially weaker O&G companies.

The rationale behind this that we have only seen about two months (Nov – Dec 2014) price deterioration of oil, but in terms of business deterioration, it is only starting now (Dec 2014). Financial results going forward will be severe for those exposed to the vagaries of oil price and O&G capex.

This is a naturally high geared industry. The access to funding now (Dec 2014) will be challenging from an equity, bond and loan perspective, even if oil stays at the USD65 level. Even among O&G companies, some will start worrying about counterparty risk.

Investors will need to sit via some large swing in share prices given and the changing nature of the industry and have at least a one year time horizon to see through the down cycle.

The call on oil price which will still determine the sector in the near term has been very unreliable and difficult due to the many moving parts along the O&G chain.

One needs to predict government policy, global supply and demand, financial speculation and currency movements to come to a conclusion on oil price. The fact that 99% of the industry got its forecast wrong on oil price less than six months ago tells you how hard it is to predict the point where oil price will bottom out.

There could be at least another month of selldown in the near term as crude oil has not really found its stabilizing point.

Even if oil price fall to USD40, it will be hard to stay there for long as there will be a lot of supply disruptions at that level and that the market will adjust itself within a year.

Thursday, November 27, 2014

IPO - EATech

EATech: A shipping and marine services provider plans to diversify its business into upstream oil and gas (O&G) and bid for risk sharing contracts (RSCs) to develop marginal oilfelds.
EA Technique is now deciding on the right partners to form a joint-venture company, in which it prefers to hold a majority stake, to bid for RSC projects. It is one of 42 companies under Johor Corp’s Intrapreneur Development Scheme. It is controlled by Kulim (Malaysia) Bhd which has a 65.4% indirect stake held through Sindora Bhd.
Abdul Hak currently owns a 24.6% stake, while his wife Datin Hamidah Omar has the remaining 10% interest. These shareholdings will be diluted once the group is listed.
It hopes to raise RM68.4 million through the issuance of 114 million shares, equivalent to 25.6% of its enlarged, issued and paid-up capital. The amount is based on the assumption of 60 sen per share, translating into a market capital- isation of RM302.4 million.
43.9% of the listing proceeds will be used to pay bank borrowings, 42.7% for capi-tal expenditure, and 6.7% each for working capital and listing expenses.
EA Technique currently operates 32 marine vessels, of which it owns 23, with nine chartered from external parties.
Proceeds from the listing will be used to gradually increase its vessels from 23 to 38. It (the increase of vessels) will be through acquisition and construction of new ones at our facility in Perak.
The group’s order book currently stands at RM1 billion, including optional contract extensions of some RM297 million, which will keep the group busy until 2025.
For the financial year ended Dec 31, 2013 (FY13), EA Technique’s net profit tripled to RM56.9 million from RM18.91 million from FY12, while revenue grew 18% to RM121.12 million from RM102.72 million, on strong performance of port services and minor fabrication.
On a segmental basis, EA Technique’s marine transportation business contributed 59.3% to total revenue, followed by port services (37.2%) and minor fabrication (3.5%).
EA Technique’s main customers — Petronas Trading Corp Sdn Bhd and Petronas Maritime Ser-vices Sdn Bhd — formed the bulk of its revenue of 63% in FY13.
To limit the group’s reliance on a single customer for its businesses, it secured a RM260 million contract in July 2013 to build, operate and charter out six units of Z-Peller harbour tugboats to Northport (Malaysia) Bhd over a period of 10 years.
EA Technique is currently the largest local harbour tugboat operator in the country, providing services to five ports.

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