TGOFFS- another attractive Oil & Gas stock

Background

Tanjung Offshore Berhad ('TGOFFS') is involved in the provision of integrated services to both upstream and downstream activities in the oil and gas industry. We also participate actively throughout the life cycle of the oil and gas fields while focusing on our four (4) core activities such as:-
• Provision of Engineering Equipment and Parts Services;
• Provision of Offshore Support Vessels;
• Provision of Maintenance Services; and
• Provision of Drilling and Platform Services.

Recent Financial Results

TGOFFS has just announced its results for 1Q2009 ended 31/3/2009. Its net profit dropped by 27% q-o-q to RM10.0 million on the back of a 8%-decline in turnover of RM187 million. Compared to the previous corresponding quarter, 1Q2008, its net profit was up 78% while turnover has doubled.

The increase in turnover and profitability levels in 1Q2009 vis-a-vis 1Q2008 are mainly due to the ongoing charter of ten units of offshore support vessels as compared to seven units of vessels previously. In addition, the company managed to secure long term charters for these vessels at favorable charter rates given the tight supply of locally flagged vessels within the industry.

The drop in turnover and profitability levels in 1Q2009 vis-a-vis 4Q2008 is due to ongoing work performed on existing engineering equipment packages that are scheduled for completion in the second half of financial year ending 2009. Hence, the recognition of turnover and net profits for these contracts are expected to be higher in the second half of FY2009.



Valuation

TGOFFS (closed at RM1.31 yesterday) is now trading at a trailing PE of 8.2 times (based on last 4 quarters' EPS totaling 16 sen). At this multiple, TGOFFS looks attractive for an oil & gas counter.

Technical Outlook

TGOFFS has broken above its medium-term downtrend line at RM1.20 about 3 weeks ago. Its immediate horizontal line support is at RM1.20, while resistance can be seen at the psychological level of RM1.50 & the horizontal line of RM1.75.


Chart: TGOFFS' weekly chart as at 26/5/2009 (Source: Quickcharts)

Conclusion

Based on steady financial performance, attractive valuation & improving technical outlook, TGOFFS could be a good Oil & Gas counter to consider for medium-term investing.