[ EATECH ] - A bridge in Oil and Gas Sector - J4 Investment Capital
Business Profile :
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The company are principally an owner and operator of marine vessels where their business is focused on marine transportation and offshore storage of oil & gas (“O&G”), and provision of port marine services.
-
The Company is involved in the charter of various types of tankers for the transportation and offshore storage of oil & gas, charter of marine tug vessels for the provision of port marine services and charter of Offshore Support Vessels (“OSV”) in the form of fast crew boats to transport personnel/light cargoes between shore and platform, platform and platform and other offshore facilities.
- As at 31 August 2018, the Company operates a total fleet of 45 marine vessels in their portfolio.
- E.A. Technique owns 42 of these marine vessels which comprises eight (8) oil & gas tankers (inclusive of two (2) Floating Storage & Offloading Unit (“FSU/FSO”), five (5) OSVs and 29 marine vessels. The remaining 3 marine vessels are chartered from external parties.
-
The group had embarked into marine engineering and marine engineering solutions when
they were awarded with the contract for the provision of Engineering,
Procurement, Construction, Installation & Commissioning (“EPCIC”) of
a Floating Storage & Offloading (“FSO”) facility for Full Field
Development (“FFD”) project, North Malay Basin.
-
As an expansion plan, they have ventured into shipbuilding, ship repair and minor fabrication in Perak. Recently, their subsidiary ( JSE ) has been selected as “Outstanding Ship Builder 2017” by Ministry of Transport.
- They also entered into a share sale agreement (“SSA”) to acquire a 100% equity stake in Libra Perfex Precision Sdn Bhd (“Libra”), which was completed in 22 November 2016. Libra as our wholly owned subsidiary has been awarded with the contract for provision of tugboats for the operations of Petronas Floating LNG1 (L) Ltd (“PFLNG1”)
Business Division :
- MARINE TRANSPORTATION AND OFFSHORE STORAGE OF OIL & GAS
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The tankers are used to transport refined petroleum products from oil refineries to end-users or to another refinery
for further processing known as Clean Petroleum Products (“CPP”) e.g.
kerosene (jet fuel), diesel and petrol (RON95 & RON97).
- FSU/FSO are typically used to support production platforms as an offshore Oil & Gas storage facility at brown fields.
- Liquid Petroleum Gas (“LPG”) tankers are used to transport liquefied gases including propane, butane and other gases such as propylene and butylene, albeit in smaller concentrations. These gases are required to be transported under high pressure and/ or low temperatures to maintain them in a liquid state.
- They also operate Offshore Supply Vessels (“OSV”), namely fast crew boats, which are primarily used to transport personnel/light cargoes between shore and platform, platform and platform and other offshore facilities.
- PROVISION OF PORT MARINE SERVICES
- The group are also engaged in the provision of port marine services for petrochemical and bulk & containerised ports in Malaysia. The types of port marine services that we provide at the ports include, among others:
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Towage services comprising towing, pushing or maneuvering vessels.
-
Mooring services
which involve securing a marine vessel to specially constructed
fixtures such as piers, quays, wharfs, jetties, anchor buoys and mooring
buoys.
- Dockside mooring services where they have mooring personnel to secure vessels to floating structures and fixtures at the wharf.
- MARINE ENGINEERING SERVICES
Divided into 2 segments :
- Provision of marine engineering solutions and shipbuilding & ship repair activities.
- Marine engineering solutions encompass provision of marine engineering solutions and EPCIC activities.
- The shipbuilding and ship repair activities serve as an internal supporting arm to our marine vessels.
- Shipbuilding: Some of the shipbuilding activities that they carry out include construction of hull and structure, installation of machinery, equipment and instruments, and various embedded systems on the deck of the vessel, painting and coating, as well as testing and commissioning.
- Ship Repair: Their ship repair utilises the same facilities, equipment and skill set as shipbuilding. Their repair works involves inspection, replacement, modification, removal, installation and cleaning.
- The group also undertake the minor fabrication of steel structures in the shipyard. The steel structures that they fabricate are mainly for marine vessels for example helipad, flare stack, skids and piping systems.
Results of each business’s division :
- MARINE TRANSPORTATION AND OFFSHORE STORAGE OF OIL & GAS
|
Result
|
Q1’2018
|
Q2’2018
|
Q3’2018
|
Q4’2018
|
|
Revenue (‘000) |
44,070
|
45,332
|
42,498
|
47,081
|
|
Profit (‘000) |
27,703
|
13,897
|
23,059
|
16,141
|
- PROVISION OF PORT MARINE SERVICES
|
Result
|
Q1’2018
|
Q2’2018
|
Q3’2018
|
Q4’2018
|
|
Revenue (‘000) |
19,402
|
23,424
|
24,756
|
30,597
|
|
Profit (‘000) |
11,712
|
7,457
|
6,286
|
18,383
|
- MARINE ENGINEERING SERVICES
|
Result
|
Q1’2018
|
Q2’2018
|
Q3’2018
|
Q4’2018
|
|
Revenue (‘000) |
349
|
372
|
300
|
140,819**
|
|
Profit (‘000) |
91
|
87,576*
|
30
|
23,063***
|
*The profit was due to reversal of EPCIC project costs as there were some deletion scope of works and settlement of claims with customer.
**The increase was due to increase in EPCIC project.
***. This was resulted from a reversal of EPCIC project cost due to deletion of certain scope of works and some additional invoices in the current quarter.
Comparison of Results :
|
Result (‘000) |
Q1’2018
|
Q2’2018
|
Q3’2018
|
Q4’2018
|
|
Revenue |
63,821
|
69,128
|
67,554
|
218,497
|
|
Cost |
46,436
|
36,224
|
52,747
|
220,212
|
|
Profit Before Tax |
17,443
|
83,202
|
7,548
|
(17,832)
|
|
Profit After Tax |
17,207
|
83,155
|
7,301
|
(33,431)
|
Company Overview for the Results :
Q4’2018 :
Revenue
FY18 12 months ended ( + 14 % )
TQ4’2017 ( RM 366.96 million ) vs TQ4’2018 ( RM 419.00 million )
The increase was due to contribution from EPCIC business. Notwithstanding, there was an increased in revenue from Marine transport services due to new charter hire fee derived from FSU Nautica Muar and Nautica Gambir.
YoY ( + 211% )
Q4’2017 ( RM 70.34 million ) vs Q4’2018 ( RM 218.50 million )
The increase was due to increase in revenue from Marine transport services derived from new charter hire fee from FSU Nautica Muar and Nautica Gambir and the increase in EPCIC project.
Profit
FY18 12 months ended ( + 168.51 % )
TQ4’2017 ( - RM 131.90 million ) vs TQ4’2018 ( RM 90.36 million )
The profit was mainly due to reversal of EPCIC project cost as there were some deletion scope of works and settlement of claims from customer.
The Group had also recorded net loss on foreign exchange of RM6.38 million for the twelve months period ended 31 December 2018 as compared to net gain of RM29.51 million in the previous corresponding period.
YoY ( -105.78 % )
Q4’2017 ( RM 1.03 million ) vs Q4;2018 ( - RM 17.83 million )
This was resulted from a reversal of EPCIC project cost due to deletion of certain scope of works and some additional invoices in the current quarter. The Group had also recorded net loss on foreign exchange of RM1.99 million for the quarter ended 31 December 2018 as compared to net gain of RM12.21 million for the previous corresponding quarter.
Business Opportunity and Risk
Opportunity :
1. Forex gain/loss base on the strength of MYR/USD. Strong MYR benefits.
2. High Order Book which can last for at least 2 financial year. Total worth of RM572.49 million with additional RM216.65 million for extension period.
3. About 71% of 42 vessels are on long-term charters, with tenures stretching until the year 2027. This has resulted in high fleet utilisation of above 80%, ensuring the Company of a recurring revenue stream.
4. Stable position of Crude/Brent Oil Price at $60 and above, which led to a corresponding increase in demand for the services of offshore vessels.
5. Strong Cash Flow of RM 90.3 million in FY 18.
6. The Group’s fleet of vessels has been expanded with the delivery of two super Fast Crew Boats (“FCB”), M.V. Nautica Gambir and M.V. Nautica Langsat on 9 July 2018.
Risk :
1. High Gearing Ratio of 1.71 .
2. Unstable Oil Price
3. High reliance on the O&G sector and the PETRONAS Group in particular.
Company Prospects / Outlooks :
Q4’2018 :
The Group has recently also been awarded contracts for the provision of three (3) Harbour Tugs and one (1) Multipurpose Mooring Boats for Sungai Udang Port Sdn Bhd Regasification Terminal. The Contract duration will be for a primary period six (6) months with six (6) months extension option for one of the tugboats and for a primary period two (2) years with one (1) extension options for the rest of the boats upon expiry thereof. The Contract is expected to contribute positively to the earnings and net tangible assets of the Group for the financial year ended 31 December 2019 and beyond. The Group has recently also been awarded contracts for the provision of Harbour Tugs for Kerteh Port Sdn Bhd for a primary period of five (5) years. The Contract is expected to contribute positively to the earnings and net tangible assets of the Group for the financial year ended 31 December 2019 and beyond. As at 31 December 2018, the Group’s orderbook was approximately RM572.49 million with additional RM216.65 million for extension period. The Group remain optimistic on its operating performance from the respective business segment Marine Transport and FSO in view of the higher utilisation of FSU Nautica Muar, Nautica Renggam, Nautica Pagoh, Nautica Gambir and Nautica Langsat in 2019.
Estimation for Q1’2019
- Strengthen of MYR/USD , forex gain of approximately RM 4.5 million. Based on past record of Q1’2018 where MYR/USD strengthened by 5% and incurred a 9 million forex gain. From the period between Q4’2018-Q1’2019, MYR strengthened by 2.5% , which means there will be around RM 4.5 million of forex gain coming in.
- Increasing revenue and profit from the Marine Service Division . With the average revenue growth rate of TQ4 2018 which is around 15% per quarter and an average of 35-40% of profit margin. Q1’2019 is expected to achieve RM 35 million of revenue and RM 8.75 million of profit. ( assumption of 20-25 % of profit margin after tax and interest ).
- For the marine transportation and offshore service division, with an average revenue of TQ4 2018, which is RM 45 million and average profit margin of 35-40% , the group is expected to achieve a RM 11 million of profit ( assumption of 20-25 % of profit margin after tax and interest ).
Expected revenue for Q1’2019 are around RM 70-75 million , and RM 15 - 20 million of profit. ( if there is no any additional invoices or reversal of cost from EPCIC project )
EPS for Q1’2019 = 3.5 - 4.0 sen , take 3.75 sen as an average .
With no growth for the next 3 quarters , whole year EPS will be 15 sen. Forward PE will be around PE 3 ( Share price of RM 0.465 ) .
With PE x5 , share price should be around RM 0.75 . With current share price ( RM 0.465 ) , a RM 0.285 or 61 % of potential gain.
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sharing and education purposes , not a buy and sell advice , please
refer to your advisory for any buy or sell call , buy and sell at your
own risk .
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