Maintain buy with target price of RM1.23: Scomi Energy’s share price experienced a 10% correction in a month after it proposed a renounceable rights issue of redeemable convertible bonds.
As there are no changes in the underlying fundamentals (excluding some weaknesses in its first quarter ended June 30 [1QFY15] results due to a delay in rig schedule from Petroliam Nasional Bhd [Petronas] but it is expected to pick up in the subsequent quarters), we believe the current weakness in its share price provides good buying opportunity.
Scomi Energy was one of our small- to mid-cap top picks in the beginning of the year and it fitted into one of our favourable micro themes — risk sharing contracts (RSC). After it secured the Ophir RSC contract in June 2014, investors had asked what the next catalyst will be for the company.
We believe by leveraging on its experience in the Ophir RSC, Scomi Energy will be able to build its capability in integrated project management (IPM) by exploring opportunities at brownfields and marginal fields in Malaysia, Southeast Asia and Africa.
Our channel check reveals that there are more potential marginal fields to be developed under Vestigo Petroleum Sdn Bhd and we expect more marginal field contracts to be awarded in the second half of 2014. In line with the global trend, national oil companies and oil majors are outsourcing turnkey projects to oilfield service providers (such as Scomi Energy) due to shortage of talents. Hence, we believe Scomi Energy is on the right track and it faces exciting times ahead.
Despite its temporary slower operations in Malaysia, we expect the company’s subsequent quarters to be stronger, driven by a pick-up in rig counts from Petronas and increasing contract wins from Indonesia and Thailand. Given the multiple growth drivers ahead, we expect Scomi Energy’s earnings to grow at a three-year compound annual growth rate of 50% with price-earnings ratio to fall to only eight times in calendar year 2016. — HLIB Research, Sept 9
As there are no changes in the underlying fundamentals (excluding some weaknesses in its first quarter ended June 30 [1QFY15] results due to a delay in rig schedule from Petroliam Nasional Bhd [Petronas] but it is expected to pick up in the subsequent quarters), we believe the current weakness in its share price provides good buying opportunity.
Scomi Energy was one of our small- to mid-cap top picks in the beginning of the year and it fitted into one of our favourable micro themes — risk sharing contracts (RSC). After it secured the Ophir RSC contract in June 2014, investors had asked what the next catalyst will be for the company.
We believe by leveraging on its experience in the Ophir RSC, Scomi Energy will be able to build its capability in integrated project management (IPM) by exploring opportunities at brownfields and marginal fields in Malaysia, Southeast Asia and Africa.
Our channel check reveals that there are more potential marginal fields to be developed under Vestigo Petroleum Sdn Bhd and we expect more marginal field contracts to be awarded in the second half of 2014. In line with the global trend, national oil companies and oil majors are outsourcing turnkey projects to oilfield service providers (such as Scomi Energy) due to shortage of talents. Hence, we believe Scomi Energy is on the right track and it faces exciting times ahead.
Despite its temporary slower operations in Malaysia, we expect the company’s subsequent quarters to be stronger, driven by a pick-up in rig counts from Petronas and increasing contract wins from Indonesia and Thailand. Given the multiple growth drivers ahead, we expect Scomi Energy’s earnings to grow at a three-year compound annual growth rate of 50% with price-earnings ratio to fall to only eight times in calendar year 2016. — HLIB Research, Sept 9
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