Tuesday, September 25, 2012

Scomi- no longer an ugly duckling

Two Suitors?

Scomi has just announced that it will do a private placement of some 10% of its paid-up capital would be made to IJM. In addition, IJM will subscribe for RM110 million worth of zero coupon 3-year Redeemable Convertible Secured Bond to be issued by Scomi. This news came hot on the heal of the news that Abu Sahid of the Maju Group has emerged as a substantial shareholder in Scomi with a 8.75%-stake. News of Abu Sahid's interest in Scomi first surfaced in early September when the market learned that Siew Mun Chuang had amassed a 5.3%-interest in Scomi. Siew is closely linked to Abu Sahid. How will Abu Sahid & IJM work together with the existing major shareholder, Shah Hakim Zain? Abu Sahid, with interests in steel production & mining (including a stake in Australia-listed Avalon Mineral Ltd), could be keen in Scomi's Oil & Gas business while IJM could be interested in Scomi's subsidiary, Scomi Engineering Bhd. Are they going to work together or are they going to carve up the group?

Scomi's Restructuring

In February, Scomi announced a corporate restructuring, which would see its oilfield services businesses and those of Scomi Marine merged under a new, full-fledged integrated oil and gas marine and drilling services provider. When merger has been completed, Scomi will make an Offer for Sale of its Scomi Marine shares. The proceed from that sale will be used to pare down the group’s debts. As at 30/6/2012, the group has short-term borrowings of RM711 million & long-term debt commitment of RM387 million.  

Scomi venturing into Oil and Gas Exploration and Production 

Scomi is believed to be the front runner for two risk-service contracts (RSCs) to be awarded by Petronas for the Tembikai and Cenang marginal fields off Peninsular Malaysia. These two fields with contracts valued at between US$200mil (RM620mil) to US$400mil (RM1.2bil) each. It is said to be partnering an Australian company, Cue Energy Resources Ltd, for this bid. Cue Energy is an oil and gas exploration and production company with a presence in South-East Asia and Australasia. 

Technical Outlook

Scomi has finally put in a decent rebound after declining continuously since May 2009. Its immediate resistance is at RM0.40 and thereafter at RM0.45 & RM0.55. Its immediate support is at RM0.30.

Chart 1: Scomi's monthly chart as at September 25, 2012_3.30pm (Source: Quickcharts)

IJM's Possible Angle

I believe IJM's interest in Scomi is to get a slice of the action in the monorail market. For more on the monorail project, go here. Combining that with its strong engineering background, IJM can offer a complete solution to the transportation problem faced by many cities in the developing & emerging nations.

IJM- A Patient Chess Player

While I see potential in a tie-up between IJM & Scomi, the fruit of this marriage may not happen immediately. That's because IJM is a patient mover. If the management team in IJM & Scomi can work well together, things can happen very quickly. If not, IJM will bid its time. A clear example is how IJM bought a 25%-stake in KEuro at 28 sen apiece for RM33.1 million in 2005. IJM Corp said at the time the purchase was influenced by its interest in KEuro’s concessions to build the West Coast Expressway (a highway stretches for 316km from Banting, Selangor to Taiping, Perak) and its 50%-stake in the Canal City, a 1,900-acre development near Kota Kemuning in Shah Alam. 

Today, the West Coast Expressway project & the Canal City development are about to kick off. IJM's shareholders will thank their management for their strategic move to take a stake in the troubled KEuro seven years earlier for a token sum of RM33.1 million.

Chart 2: KEuro's monthly chart as at September 25, 2012_3.30pm (Source: Quickcharts)

Chart 3: IJM's monthly chart as at September 25, 2012_3.30pm (Source: Quickcharts)

Which is a Better Bet?

Looking at the chart of KEuro & IJM, there is no doubt that one would have been better rewarded if he/she had bought into KEuro in 2005, instead of IJM. On the same basis, it would be better to invest in Scomi & wait patiently for the full potential of the group to be realized.


Bee said...


Can you please explain how Scomi-LA works? What does it mean that "The conversion of the ICSLS will not require any cash payment by the ICSLS holder. The conversion price will be satisfied by surrendering for cancellation the ICSLS with an aggregate nominal value equivalent to the conversion price. Any fractional SGB Shares arising from the conversion of the ICSLS shall be disregarded."?


cheer said...

Hi Alex

Share with us your view on this http://www.cnbc.com/id/49078668/Golden_Cross_May_Signal_Big_Gold_Gains_Ahead

Thanks n regards

Mat Cendana said...

AirAsia was under the intense spotlight last week - now it's IJM. And both have suffered sharp drops.

I'm puzzled as to how IJM's shares have been beaten down so badly over the past two days. Considering IJM's solid financial situation, the amount involved isn't big at all. Even if IJM is `bailing out' Scomi, the fact that the latter has viable businesses must also be considered.

Maybe the sharp fall is a good thing, for it gives investors the chance to buy IJM at a very reasonable price. The market will get over this, as it always does, and people will start to reevaluate the company to what it's really worth. All it takes is just some time. Give it three months until the end of 2012 - unless if external factors (Europe especially) create a real drag, I'm betting IJM will be above 5.00 again by then.

Alex Lu said...

Hi Bee

Scomi-LA's conversion price is 40 sen. Since its par value is 10 sen, you need to surrender 4 Scomi-LA to covert to 1 Scomi.

To calculate the value of Scomi-LA, just divide Scomi by 4.

Alex Lu said...

Hi cheer

Thanks for the link.

Alex Lu said...

Hi Mat Cendana,

The sharp fall in IJM is a buying opportunity. However, given the global uncertainty, one should buy slowly....