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Singapore Investment

 TAS 5149 TAS OFFSHORE BERHAD: The Good Time Has Finally Come?

Recently oil & gas sector seems to be quite robust as Petronas is expected to award more contracts in the near future. It plans 300 facilities improvement projects yearly from 2024 to 2026.

Many O&G stocks have made significant gain in share price since the end of Dec23. However, the two O&G stocks in my portfolio (Hibiscus & T7Global) did not move too much.

Petronas did mention that "significant increase is expected for plug & abandon activities in 2024". I think T7Global should be one of the potential beneficiaries for this P&A jobs, isn't it?

On 23 Jan24, Petronas announced that it has awarded 7 new PSCs (Production Sharing Contracts) under the Malaysia Bid Round 2023.

It is expected to garner more than RM1.3bil worth of capital investment (only?) to the country in the form of exploration work activities.

All those listed companies who provide direct services to the upstream O&G players will surely benefit from this development.

I think offshore support vessels (OSV) should be in good demand too but I'm not too sure about the recent supply and demand status.

The OSV demand seems to be depressed since about 10 years ago.

I have lost track on Coastal after I sold all its shares about 2 years ago. When I look back at it now, it doesn't mention anything good about its ship building division. It seems like it has already given up on its once lucrative OSV building business?

Then I remember another smaller OSV builder TAS. The first thing I did was to check its share price chart.

When I saw TAS's share price rising from below 20sen in Jul23 to 60sen in Jan24, I felt like I have missed the boat and lost interest straight away.

However, I still went through its latest quarter report & annual report, just to know why its share price did so well despite its recent financial results were not so convincing.

Immediately I regretted that I missed its FY23Q4 quarter report released in Jul23. If I did read that report, surely I would have gone big into TAS at that time.

Its net profit of RM15.7mil in FY23Q4 was clearly from one-off gain so it's not that interesting. The main point was in its commentary on prospects.

In that report, the management mentioned that its order book stood at RM203mil. For comparison, its average annual revenue in the last 3 years was only RM42mil per year!

In its latest FY23 annual report released in Sep23, TAS informed shareholders that it has signed 27 shipbuilding contracts worth RM180mil in FY23.

I'd expect the boats should take at least 1-2 years to be delivered to the customers. So, those contracts signed in FY23 should be delivered in FY24-25.

The table below showed the total contracts and delivered unit of boats in each FY.

Since FY18 until Nov23, TAS has secured at least 63 ship building contracts. It might be more than that as we don't know how many contacts it has secured in the first half of FY24.

TAS normally does not announce its contract win via Bursa announcement, it only reveals it in its annual report.

However, it has chosen to announce its contract win recently in Jan24 with 3 units of tugboat order secured. 

Why does its management suddenly decided to announce its contract win immediately? By common sense, I guess they expect more to come.

From the 63 contracts secured since FY18, TAS only delivered about 34 units. That means most likely all the 27 contracts secured in FY23 are not delivered yet up until the end of calendar year 2023.

Thus, the second half of its FY24 and FY25 should be a super busy period for TAS. The management even acquired land next to its existing shipyard to expand its operation last year.

Its share price has gained so much though. Does it still have room to go up?

It registered revenue & PAT of RM28.4mil & RM4.5mil (EPS 2.53sen) respectively in its latest quarter of FY24Q2. There seems to be no significant one-off items in it.

With the revenue of RM28mil in its latest quarter, I guess 4 units of boats were delivered.

So I opine that such figures can possibly be repeated each quarter, which means it can deliver average 4 units of boats per quarter with RM4-5mil net profit per quarter.

If this is true, then it can achieve EPS of 10sen in a year.

That's why I think that it's still not too late to buy its shares at 50-60sen, but of course the risk will be much higher compared to buying at 25sen after it released its FY23Q4 result in Jul23.

Historically TAS's share price reached RM1.50 in mid 2014 when its EPS was 16.4sen in that year with net profit of RM28.8mil.

Anyway, all those ship building contracts are not related to O&G at all!

Almost 100% of its contracts now comes from Indonesia to build tugboats, due to higher demand for Indonesia's coal and nickel.

Not too long ago TAS used to build higher value OSVs for O&G sector. Will it still have the time and capacity to build OSV in the near future? If yes, then it will be a very good news but I doubt so.

TAS has only 178mil ordinary shares, with 64% being held by its largest 30 shareholders (FY23).

It is kind of a high return high risk thing.

Please bear in mind that TAS might not deliver consistent quarter net profit. We can have a glimpse into this from its previous quarter results in which net profit margin could swing wildly into losses.

Its best revenue in recent years was in FY22 with RM57.5mil in which it delivered 9 units of boats, but it still made loss that year.

Nevertheless, I believe that with better economy of scale, and without interruption from Covid restriction going forward, it might be able to deliver more consistent and perhaps higher profit margin.

The number of units delivered to customers should also become more stable at least in the next 2 years.

Anyway, next quarter's FY24Q3 result might not beat its immediate preceding quarter depending on how many boats are readied in time for delivery to customers.

Besides, TAS might not be able to increase its capacity in time to push up the number of units delivered per quarter. This means that its revenue and profit can't grow past the bottleneck.

The company has allocated capex for the first time in "n" years to purchase land for expansion, hopefully it can increase its capacity and output meaningfully.

Another issue is that its new contracts might suddenly dry out. Since the management started to announce contract win in Bursa, I guess this year it might still get good amount of contracts although it is unlikely to beat FY23's 27.

If the OSV demand comes back and TAS decides to receive the orders, then it will be a bonus.

At the moment TAS is not related to O&G sector anymore but massive drop in crude oil price might hit its share price too.

I find that a few investment bank analysts have already covered TAS since last year. So it is not something unknown to most investors.

As a latecomer, my strategy is to take my first position in TAS first, then see what happen next.

If the general market turns bad and its share price drop, I might want to add more shares.

Then its upcoming quarter reports and bursa announcement for new contracts will be closely monitored.

I can't predict accurately how its upcoming results will look like, but I'm pretty sure that everyone in TAS from top to bottom are working their socks off to fulfill the orders now.


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