Eversendai branches out with O&G fabrication facility
Company eyes Saudi Aramco jobs after certification
EVERSENDAI Corp Bhd is banking on its recognition from Saudi Aramco to boost its order book in the oil and gas (O&G) sector.
In November last year, Eversendai announced that its facility received 9COM certification, which pre-qualifies it to undertake jobs by Saudi Aramco, Saudi Arabia’s national oil company.
“This puts Eversendai Offshore in the running for contracts involving a total volume of some 100,000 metric tonnes of steel that are expected to be awarded by Saudi Aramco over the next two to three years,” said Narish Nathan, the CEO of Eversendai during a press visit to their facilities in the United Arab Emirates (UAE) recently.
In addition, there will also be projects from the Abu Dhabi National Oil Company (Adnoc), and the state companies of other countries in the region such as Qatar, Kuwait and Iraq, he says.
Towards this end, Eversendai managing director Tan Sri AK Nathan says the company is tendering for US$12bil worth of jobs in the O&G sector and its success rate has been between 5% and 10%.
Eversendai has described the Ras Al Khaimah fabrication yard in the UAE as the “jewel in the crown”of the company because of the state-of-the-art facilities there.
“The Ras Al Khaimah fabrication yard is well positioned to capitalise on more jobs in the Middle East O&G sector,” says AK Nathan.
He adds that with the facility’s three-year track record, its chances of securing contracts will only get better.
“From ground zero, we were able to create a track record.
“O&G is one business where track record and past experience is crucial,” he said during a press conference at the sea trial launch of the Aryan liftboat at RAK Maritime CIty in the UAE on March 21.
The Ras Al Khaimah fabrication yard is a 200,000 sq m offshore facility with an annual production capacity of 30,000 tonnes of fabricated material.
It is capable of fabricating and loading out heavy structures such as offshore jackets, platforms and process modules directly into the water.
The facility is currently completing Eversendai’s first Saudi Aramco job constructing jackets and piles for the oil major. According to Narish, the project is ongoing and will be completed by the second half of this year.
Upon its completion, work resources at the fabrication yard will be diverted towards finishing the second liftboat, the Arjun, which is about 30% built and targeted for completion in about a year’s time.
AK Nathan is confident of securing charters for the liftboats following the completion of the sea trial for the first liftboat that started on March 21.
TA Securities analyst Ooi Beng Hooi says the completion of the liftboat, the Aryan, would open up opportunities for Eversendai for more jobs in the O&G sector.
“Besides allaying concerns on the much delayed completion of the liftboat, we think the completion of its first liftboat would open up opportunities in the O&G-related steel fabrication projects as the track record may pre-qualify Eversendai Offshore for more complicated projects, which includes process modules and third party liftboats,” said Ooi in a recent report.
While the completion of the first liftboat has added to Eversendai’s track record, there are concerns over the utilisation rate of the fabrication yard.
Kenanga Research is of the view that the Ras Al Khaimah facility could perform better with more jobs because it would help mitigate the fixed cost of managing the yard.
Analyst Lum Joe Shen says in his research report that the current order book for the facility stands at RM370mil, of which RM150mil comes from the second liftboat.
Eversendai first announced the contracts for the two lift boats in 2014.
The contract sum was RM580mil and the mandate came from a private company of AK Nathan’s – Vahana Offshore (S) Pte Ltd
In June 2014, crude oil prices started its free fall and only stabilised in June 2017, with the poor O&G market causing delays to construction works on the Arjun.
Synergistic benefits
To further optimise its utility, the Ras Al Khaimah facility will also be put towards helping to grow Eversendai’s structural steel division, which a Q4FY17 earnings statement revealed contributed to 68.3% of overall group revenue.
The group’s total outstanding order book stands at about RM2.5bil, with over 70% of that amount coming from the group’s structural steel business.
According to AK Nathan, the facility will be used for modular construction in building projects, whereby building units are pre-engineered and delivered in its completed form for assembly at building construction sites.
Furthermore, the strategic location of the Ras Al Khaimah facility on the Persian Gulf may usher in new opportunities for Eversendai in exploring new markets.
“We are looking at constructing and fabricating some heavy and highly complex structures that need to be transported by sea.
“With the waterfront facility and its location, it is strategically located to support projects in Europe or the west coast of Canada, the US or Africa,” says AK Nathan.
Eversendai will not be setting up any more mega-factories in the region but instead will utilise facilities in other countries.
The group has seven fabrication facilities, three of which are in the UAE and one each in Qatar, Malaysia, India and Thailand. “We can use any of these to support any region.
“We can fabricate and export to any part of the world,” he says.
The export strategy would see Eversendai diversify its business beyond its existing markets, the biggest of which is the Middle East, which is the source of 69% of the group’s overall revenue.
Eversendai has made a name for itself in the region since its first project there, the Burj Al Arab Hotel in Dubai in 1996. The group now owns a diverse portfolio of structural steel works, a high concentration of which are iconic initiatives in the UAE such as the Abu Dhabi International Airport, Dubai-I, Dubai Frame and the Museum of the Future.
ICD Brookfield Place, a US$1bil, 54-storey mixed-use development jointly owned by the State Corporation of Dubai and Brookfield Property Partners, is another of Eversendai’s ongoing projects poised to be a landmark development in Dubai’s financial district.
The size and complexity of the projects Eversendai undertakes lends weight to AK Nathan’s assertion that the group’s job wins in the region come from its superior execution capability.
“In the Middle East, they dont look at the lowest price. They look at the responsibility that they have to deliver. They don’t go with companies that can’t deliver the job,” he says.
The group’s venture into O&G has not always been rosy. Starting with an investment in Singapore-based Technics Oil & Gas Ltd, the group experienced losses in FY2016 due to a crash in oil prices and the overall poor performance of the O&G market at the time.
Recording an impairment of RM102mil in the first half of FY2016, that venture was completely written off by the end of the financial year and AK Nathan declared he would post progressive profits for each quarter of FY2017.
So far Eversendai has been reporting profits every quarter. For the financial year ended Dec 31, 2017, Eversendai posted net earnings of RM86.5mil compared to a net loss of RM257.5mil a year earlier.
“Going forward this year, I will continue to show profits for every quarter,” he tells reporters.
AK Nathan believes that turnover growth through increasing volume of work will help to ramp up profitability in the company. He is opposed to the view of critics that there should be higher profit margins from his projects, especially given their complexity. “We are happy with the profit margins. “With increased turnover the profits will be better,” he says, adding that profit margins for the Middle East have come in at a ballpark figure of 10%.
“If the margins are not up to expectations, we would rather walk away.”
A minority shareholder in Eversendai, Koon Yew Yin, who owns a 9% stake in Eversendai, would like to see better profit margins from the company.
“Eversendai is not like most construction contractors. I believe there are very few contractors of this class in the world. As a result, it has less competitors and should be able to secure contracts with a higher margin of profit,” he says.