TGOFFS (FV RM2.53 - NOT RATED) 1QFY12 Results Review: In The Throes of a Revamp

Tgoff’s 1QFY12 results were above expectations, mainly on account of the profits generated from its discontinued  vessels  business, which  posted  a net profit of RM7.9m during the quarter. In contrast, its non-vessel business recorded a net loss of RM1.0m.  We are of the  view that  the  good quarterly results may not be sustainable since the company recently hived off its vessel business, which had a fleet of 16 vessels, to Ekuinas' subsidiary. Hence, no change to our FY12 earnings forecast  for now. We are also taking this opportunity to cease coverage on the company. Our previous recommendation on the stock was  a SELL.

Above expectations. Tanjung Offshore (Tgoff)‘s 1QFY12 results were above consensus and our  expectations, making up 40% and 48% of the FY12 forecasts.  However,  the 1QFY12 net profit of RM5.4m was  mainly contributed by  the company’s  discontinued vessels  business, which  turned in a  net profit of RM7.9m during the quarter. This is in contrast with  the  net loss of RM1.0m from its  own  non-vessel business. Hence, going forward,  the  good quarterly results may not be sustainable since  the company recently disposed  of its vessel business, which had a fleet of  16 vessels, to Ekuinas' subsidiary. This will  leave  Tanjung Offshore  with its  non-vessel businesses, comprising the: i) equipment; ii) engineering, and iii) maintenance services divisions. As these businesses are currently being revamped as the company shuts down its  non-core and loss-making businesses, right-sizes its manpower and streamlines its organization structure to improve efficiency, we do not expect to see any good results in the short term, although it may see improvements in the long run.

No change to our FY12 earnings. Although the 1QFY12 results made up 48% of our FY12 forecasts, we are keeping our earnings unchanged for now as we still anticipate that there may be losses in the coming immediate quarters since Tanjung Offshore is undergoing the rationalization process.

Ceasing coverage. Our fair value for the company remains unchanged at RM0.53 based on existing PER of 12x FY12 EPS. We are also taking the opportunity to cease coverage on the company now as we do not see bright prospects in the company in the immediate term. Of course, once the rationalization process has been completed and become successful, this may revive Tanjung Offshore back to its glory days with profitable earnings.

Source: OSK