Scomi Group Bhd ('Scomi') is an investment holding company involved in the provision of services primarily for the oil and gas industry worldwide. The company operates through four segments: Oilfield Services, Energy and Logistics Engineering, Energy Logistics, and Production Enhancement. For the group structure, go here.
Financial Results
Scomi is a fairly profitable company. Its past 4 quarters' pre-tax & net profit declined by 20% & 22% to RM125.6 million & RM90.6 million respectively, when compared to the preceding 4 quarters. This is despite a 7%-increase in turnover from RM2.03 billion to 2.17 billion.
Table: Scomi's 8 quarterly results
Financial Position
As at 30/6/2009, Scomi's financial position is mixed with current ratio at 1.5 times & gearing ratio 1.1 times. The high gearing ratio is a bit of a concern.
Capital-raising exercise
The company is in the process of raising a RM165.5 million Irredeemable Convertible Secured Loans Stocks ('ICSLS') together with up to 219,8 million free detachable warrants (“warrants”) on the basis of fifteen (15) RM0.10 nominal value of ICSLS together with two (2) free warrants for every ten (10) ordinary shares of RM0.10 each in Scomi held.
The ICSLS will have a tenor of 3 years and bear interest at a rate 4% pa. The tenor of the warrant is also 3 years. Conversion for ICSLS: 4000 ICSLS exchangeable to 1000 shares. Conversion for warrant: 1000 warrants plus RM400 exchangeable to 1000 shares.
Arbitrage opportunity
The Rights of the above ICSLS issue, referred to as Scomi-LR, is being traded in the market up to November 23. There is an opportunity for arbitraging: buy 60000 Scomi-LR at RM0.015 each & subscribe at RM0.10 each, you would end up with 60000 ICSLS costing RM6900. Convert the 60000 ICSLS to 15000 Scomi shares, presently trading at RM0.485 each (or valued at RM7275 in total) and you will make a gain of RM375. In addition, you will still be owning 8000 warrants f.o.c.
Valuation
Based on its closing price of RM0.475 yesterday and its EPS of 9 sen for the past 4 quarters, Scomi is trading at an undemanding PE of 5.3 times.
Technical Outlook
Scomi is still in a downtrend. In fact, one can draw a bearish price channel for this stock. The immediate horizontal support is at RM0.44-48 & thereafter RM0.30. Why is Scomi still dropping? I fail to see why it didn't emulate the price performance of Sapcres or Kencana. Could it be due to political factor?
Chart: Scomi's weekly chart as at Nov 19, 2009_12.30noon (Source: Quickcharts)
Conclusion/Comment
Based on the cheap valuation, Scomi could be a good stock for long-term investment. One must bear in mind that this stock's technical outlook is still bearish and would not rally for sometime.
Hi, Alex. What do u think about Oilcorp that recently admitted into PN17? Oilcorp was unable to pay the loan interest that due to it amounted million plus from EON bank. However, based on last year annual report, Oilcorp has trade and other receivables that amounted more than 474 million.This would not only enough for paying the interest, but the whole pricipal sum of loan amount of 40 million. So, do u think this stock will bounce back to it previous share price of RM1.00
ReplyDeleteHi Kenny,
ReplyDeleteI think the chances of a recovery in Oilcorp is fairly slim. The amount of doubtful debts in its books is very significant. For example, it is stuck with a completed bio-diesel project where a sum of RM100 million cannot be collected (and, is now converted to equity worth very little). It has invested very substantial sums in overseas projects that are jammed up. Oilcorp is staring at a huge capital reduction, maybe as high as 10-to-1. Best to avoid this stock.
Hi Alex. The global steel prices has moving up recently and most likely will continue its growing trend. This has reflected in some of our country steel player's financial result like Mastel. Lion group is among the top player in this country.Do u think the increase of global stell prices will bullish the Lion group of companies? Which Lion company in the KLSE is your top pick for steel industry? Rumour like LIONDIV will merge with LIONCOR, is that possible to happen?
ReplyDeleteThe similarity of the Scomi and Oilcorp perhaps is political connection, in which is required for oil business in the world not only here.
ReplyDeleteTry this blog http://whereiszemoola.blogspot.com, a very meticulous analysis on Scomi is found there.
Hi Solomon,
ReplyDeleteThanks for your comment at the http://whereiszemoola.blogspot.com website. I don't think i want to buy the right issue. I don't know what to do ? I have limited fund!!!!!!
Thanx for you valuable informations.
ReplyDelete4 Years detailed financial analysis of scomi can be viewed at www.huzaifahm.blogspot.com