Tuesday, July 10, 2007


Coastal Is Clear

I have highlighted very few specific stocks of late because good ones are hard to locate. However, in light of my view that oil & gas is in for a spectacular 6-12 months ahead, its time to dig deeper. I think small-mid caps such as Coastal Contracts & Ramunia are worth buying for safekeeping.

In 2000-2004 there were 91 deepwater fields being developed. For 2005-2009, there are approximately 195 deepwater fields scheduled for development. Sustained high oil prices can only support the growth in this area. Aker Kvanaer has recently set up a US$100m subsea manufacturing center in Port Klang. The place can assemble a complete range of subsea systems equipment including Christmas Tree, a set of valve spools and fittings connected to the top of an oil well to direct and control the flow of formation fluids. Aker has completed the first Kikeh subsea tree and control module, their setting up in Port Klang is a vote of confidence on the excellent outlook for deepwater development. Currently there are 9 deepwater and 2 ultra deepwater blocks under production-sharing -contracts, while 10 exploration blocks will be available for data review. As mentioned, Kikeh will start the ball rolling followed by Gumusut and Kakap in 2010. Malaikai, Kebabangan and Jangas should start in 2011.

We can expect a deepwater hub being set up in Malaysia looking at the projects ahead. Contractors, fabricators and engineering firms will want to invest to tap into these deepwater developments.
Ramunia will benefit big time based on its rig building capacity, Korean technology and expertise, and high-end offshore structures. Sime Darby will be very much aware of this, and so too is Petra Perdana / QLC - should be the next M&A play soon. Coastal Contracts will be favoured thanks to its highly scalable shipbuilding capacity and potential entry into fabrication of offshore structures. Coastal should be an M&A candidate as well. Other big players who want a foothold into oil & gas could not find a better vehicle than these two to gain entry into a lucrative and vibrant sub-sector of oil & gas. Bsically, these two ties in very well with my strongly promoted SapuraCrest (deepwater drilling rigs & fluids.)

p/s although Sime Darby has walked away from buying Ramunia months back, it was due to greedy pricing by Ramunia owners, as the oil & gas long term development plans gets revealed, there will be more companies willing to pay the high premium demanded by Ramunia's owners ... hence I feel strongly Sime will be back to talk as deepwater prospects look too big and too good to miss out for a company like Sime Darby

4 comments:

hellthy correction said...

ramunia's share sale to sime fell off due to unrealistic pricing. They think that just becoz sime is currently renting its servicing yard that it makes good sense to purchase it.....sources says that at 70-80mil sime would close one eye outright have the deal done but @ 700++million?.... Mr.so & so of ramunia is so greedy that they think by grabbing sime's 'painful leg' (cantonese term) he could demand all he could....ramunia has a reputation of being a very bad pay master to its contractors some as long as 12mths in arrears. Other than its political connections, this company will be the first to go down once bad times hits us....

jackofalltrades said...

Hi Dali, what's your take on Petra Energy IPO? Its theoretical ex-bonus price of RM1.76 was arrived using a P/E multiple of ~9x and a forecast EPS of 17.xx sen. Such P/E is apparently very low as compared to other O&G players.

Out of the RM1xx millions to be raised from the listing exercise, RM100m will be used to repay debts owing to Petra Perdana. After the repayment, long-term liability will stand at ~RM200m, which is 0.5x of total capital. Is such gearing considered high in O&G sector?

Thanks.

ccdev said...

other than ramunia, so many of the other fabricators short of space. of course in this kind of environment,ramunia have to ask for premium. besides, which businessman not greedy? As for ramunia being the first to go down once bad times hit us, how many local companies can ride thru the storm? Look at history, some companies do nothing but sit on their arse and get billion dollar contract also can get into trouble. Not many like ioi, pbb with blue chip mgt. We know that many of these companies, just ride the wave, and i think the wave got some way to go. If you ride until finish line, maybe habis cerita then.

hellthy correction said...

ccdev, i suppose most importantly is what's in it for us, the minority shareholders. Large contracts does not tantamount to large profits and definately does not mean that shareholders gets a piece of that pie. Better go for companies that have track record of rewards its shareholders.