Scomi Marine Bhd is involved in the provision of Marine Logistics and Offshore Marine Support Services, in the South East Asia and
The group, which has a fleet of 150 vessels that include utility vessels, AHT, tugs, barges, accommodation barges and landing craft, derived 75% of its income from the marine logistics and 25% from the offshore marine support industry for the oil and gas for the financial the financial year ended Dec 31, 2006.
Prior to 30th September 2005, SCOMIMR was formerly Habib Corporation Bhd, a company involved in the retailing of jewellery products. It was taken over by Scomi Group Bhd & a new business of offshore support services was injected into SCOMIMR via the acquisition of the marine logistics services from a Singapore-listed company, Chuan Hup Holdings Ltd ('Chuan Hup'). In July 2006, SCOMIMR divested its jewellery buciness to M.S. Habib Holdings Sdn Bhd.
Industry outlook
With the high demand for energy, there is an increase in exploration and production activities, especially in the offshore area. This presents opportunities for the offshore support services operator, such as SCOMIMR. The group has explained higher utilization rate of its vessel, which has increased to 95% in December 2006 from 85% a year ago. (You may like to read this article about the increasing demand for drill-ships & possibly other vessels for servicing offshore exploration and production. Go here).
With the high price of crude oil, the demand for coal has also improved. The group will benefit from this increasing demand for coal by power generation plants in Malaysia & Indonesia. Here, many investors must have been disappointed by the lack of big contracts from the Malaysian side, contrary to earlier expectation.
There is an interesting article about the Peh family's proposed privatization of Chuan Hup in the Edge last weekend (go here). The story raises the question of why do they want to privatize Chuan Hup since its main assets is its 28.9%-stake in SCOMIMR (part payment received from the disposal of its marine logistics services business to SCOMIMR). Does the Peh family expect SCOMIMR's fortune to improve soon?
Recent Financial Results
For FY2006, SCOMIMR reported a net profit of RM80.5 million on a turnover of RM442 million. For QE31/12/2006, its net profit dropped 18.7% q-o-q or 4.5% y-o-y to RM21.3 million while its turnover has increased by 4.0% q-o-q or 22.8% y-o-y to RM114 million. The drop in its net profit was due to lower contribution from its associate, CH Offshore Ltd, from RM17.4 million to RM6.5 million. This drop was attributable to exception gain from the disposal of a vessel in CH Offshore Ltd, in the preceding quarter.
Table: SCOMIMR's last 8 quarters' results (with post-acquisition period highlighted in yellow)
Valuation
Based on its FY2006 EPS of 11.9 sen & its closing price of RM0.915 yesterday, SCOMIMR is now trading at a PE of 7.7 times. This is fairly attractive.
Technical Outlook
SCOMIMR has dropped from a high of RM2.87 in Dec 2005 to a low of RM0 .685 in Dec 2006 (see Chart 2 below). While the long-term downtrend is still in tact, the stock is recovering, with the share price moving in a short-term uptrend, with support at RM0.80. If it could surpass its recent high of RM1.12, the uptrend for this stock could begin.
Chart 1: SCOMIMR's daily chart as at April 5
Chart 2: SCOMIMR's weekly chart as at April 5
Conclusion
Based on attractive valuation but still weak technical outlook, SCOMIMR is a stock to be accumulated on weakness.
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