INVESTMENT MERIT
Likely upliftment of PN17.
After two years of being classified as a PN17-status company, TH Heavy
Engineering (THHE), or formerly known as Ramunia Holdings, has gone through
several corporate exercises to improve its financials. Today, it has turned
profitable and has on 31 July submitted an application to SC for an early
upliftment from being classified as a PN17 company.
RM210m contracts for
12 months. In Mar12, it secured a
RM23.6m fabrication job from Aquaterra Energy Ltd for the West Desaru Project,
which was completed in July12. Three months later, it won two sizeable
fabrication jobs from Sarawak Shell, totalling RM177.5m, scheduled for
deliveries in 2Q13. With this, THHE has an orderbook backlog of c.RM210m, which
will support its earnings for the next 12 months.
Tabung Haji the
majority shareholder. After its
recent corporate restructuring, Tabjung Haji now owns a 32% equity stake in
THHE, an increase from 29% previously. This, in our view, could boost the
public confidence in the company for its future growth prospect.
Fairly valued. The potential upliftment from PN17 status has
caused the share price to rise 13% in the past week. While we reckon that THHE
is financially stronger now and more profitable, we however, see little upside
from here. THHE is fairly valued at RM0.55 based on 8.5x FY13 PER (ex-cash from
the rights issue), which is our average targeted PER for small cap Oil &
Gas stocks. On the downside, the rights price of RM0.40 should serve as a floor
valuation.
SWOT ANALYSIS
Strength: Strategic location of its newly acquired 57-acre
integrated fabrication yard in Port Klang, with an annual capacity of 10,000
mt.
Weaknesses: Its current PN17 status could challenge its
ability to secure more contracts.
Opportunities: Business expansion into lucrative FPSO market
by acquiring a FPSO vessel.
Threats: Margin
contraction from FPSO segment due to pricing competition with the big boys.
TECHNICALS
Resistance:
RM0.585 (R1), RM0.65 (R2), RM0.715 (R3)
Support: RM0.475
(S1), RM0.44 (S2), RM0.39 (S3)
Views: Bullish in
the S-T & M-T
Comments: TH
Heavy has just broken above the short term ascending triangle. Immediate TP of
RM0.575 with the first level of support at RM0.475. Buy on weakness.
BUSINESS OVERVIEW
TH Heavy Engineering or formerly known as Ramunia Holdings
is involved principally in the fabrication of offshore steel structures and the
provision of other related offshore O&G engineering services in Malaysia.
In order to secure more opportunities from the O&G sector and being part of
its business growth plan, the group has decided to foray into marine vessels
services as its first step to explore within the expansive O&G activities
chain.
BUSINESS SEGMENTS
Offshore Structures
Fabrications. Core business which
focuses on the fabrication of offshore oil and gas facilities, including
substructures, platforms and topsides.
HUC & Topside
Major Maintenance. It offers
offshore topsides modifications, upgrades, shutdowns, repairs and
de-commissioning of existing or abandoned platforms. (Both these segments
contributed 90% of the group’s 1H12 revenue.)
Offshore Crane
Manufacturing. This division is housed under its wholly owned subsidiary,
O&G Works Sdn Bhd, and has been granted the license to manufacture offshore
and marine crane.
Marine Services. This is a newly ventured business that
enables the group to minimise the risk
of its dependency on fabrication jobs. The acquisition of RM248.4m of FPSO
vessel is part of its strategy to tap into demand for services in marginal
oilfield development.
Source: Kenanga
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