The Star Malaysia - StarBiz

Hampered by Gorgon job delay

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THE financial year 2012 first-quarter net profit of RM17.8mil was below expectatio­ns, making up only 15% of our full-year estimate of RM115.7mil and 14% of the consensus’ full-year estimate of RM129mil.

The variance to our net profit estimate was mainly due to the delay in the recognitio­n of the Gorgon project in the current quarter, which led to overall lower bottom-line earnings for the company.

No dividend was declared in the quarter.

Year-on-year, the first-quarter net profit decreased by 59% due mainly to a high base effect from previously, which saw two-quarter contributi­ons of the Gorgon project, after it was delayed in 2010.

Compared with the previous quarter, the group’s net profit was down by 9% mainly due to lower margins from the oil and gas division which were hit by less-thanoptima­l project mix given that its Gorgon project did not come in for the quarter and continual losses from the engineerin­g division due to a project which had continued to see cost overruns.

Short-term project replenishm­ent will be fuelled by domestic projects like the North Malay Basin and pipeline replacemen­t due to Petroleum Nasional Bhds’ asset rejuvenati­on plans.

Longer term, its pipe-coating plant with Louisiana, through a joint venture with Insituform, will enhance its reach in the Gulf of Mexico.

Its order book currently stands at RM1.2bil which 63% are of oil and gas, 21% renewable energy, 16% industrial and trading.

We are maintainin­g our FY12 net profit assumption­s given that the Gorgon project will likely start in the second quarter.

However, we are trimming our FY13 to FY14 earnings forecast marginally by 5% per year to RM120.8mil and RM125.7mil respective­ly as up to now, the company has been unable to win major internatio­nal pipecoatin­g projects, which typically carry higher margins.

As such, we have reduced our gross profit margin assumption to 28% from 29%.

We are maintainin­g our outperform rating and have rolled forward our valuation basis to FY13.

Given that earnings visibility looks uncertain and volatile in the near term, we have downgraded our target price to earnings ratio to 14 times from 15 times.

With that our target price is downgraded to RM2.23 per share from RM2.30 previously.

Given the 20% upside, we are maintainin­g our call.

The risks involved are the inability to secure more contracts going ahead and lower-than-expected margins.

Malaysian bulk carriers’ (may bulk) first-quarter core net profit is broadly in line with our forecast even though it came in at 19% of our fullyear forecast, which is 13% of consensus.

We think that earnings have reached a trough and should turn north due to improved freight rates, more hire days and lower bunker cost.

Hence, we are upgrading our call from “underperfo­rm” to “neutral.” We think share price is cheap relative to Maybulk’s assets and already reflect the poor earnings outlook.

Our target price is based on a 20% discount to the sum of parts. However, we trim our earnings per share forecasts and target price slightly for lower freight rates.

The poor results came as no surprise to us as bulk rates fell sharply in the first quarter and bunker fuel traded higher.

Average bulk tangible common equity ratio fell 50% compared with a year earlier while the tanker operations fell into losses.

Maybulk reported several exceptiona­l gains totalling RM18mil, including a RM3.1mil disposal gain.

Maybulk sold its 27-year old handysize Alam Gula and received US$3.1mil (RM9.45mil) proceeds. The sale price was close to our esti- mate of US$3.2mil.

Recently, it also sold Alam Senang, a 28-year old handysize for an undisclose­d price.

Since the first quarter, rates have recovered strongly and we are expecting a quarter-on-quarter improvemen­t in bulk earnings.

Maybulk has taken in additional long-term charters in the second quarter that will lift hire days.

Bunker fuel price has also come off its high of US$750 per tonne in the first quarter and is now at US$631 per tonne.

This could alleviate Maybulk’s fuel cost pressure in the coming quarters.

Since our downgrade to underperfo­rm on Jan 30 this year, Maybulk’s share price has fallen 39% from RM2.65.

Share price is now trading 20% below sum of parts, which may interest long-term value investors.

Maybulk is currently in a net cash position of 20 sen per share, enabling it to take advantage of low asset prices and to weather out the crisis.

 ??  ?? Pipes being coated at Wah Seong Corp Bhd’s pipecoatin­g plant.
Pipes being coated at Wah Seong Corp Bhd’s pipecoatin­g plant.
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