Saturday October 20, 2012
Stock market revival of Scomi
By JOHN LOH
AFTER years of obscurity, the Scomi group could not have picked a more sensational way to charge back into the spotlight.
A darling of the stock market in the mid-2000s, it fell from grace when the credit-fuelled boom of the West came crashing, leading to precipitous losses across the group's oil and gas (O&G) and transportation businesses.
“In 2008 the floor just gave way. The market was just gone,” an official close to the company tells StarBizWeek.
It took the entry of a duo of big-name shareholders, namely construction giant IJM Corp Bhd and businessman Tan Sri Abu Sahid Mohamed, who got his start as a scrap metal dealer, to revive interest in the stock.
The shares of Scomi's three listed companies have all seen a meteoric rise in both price and volume since the emergence of the shareholders, with the flagship Scomi Group Bhd gaining 19% and Scomi Engineering Bhd 28% since Sept 24 to 41.5 sen and 56.5 sen yesterday. Heavy trade in its offshore support services arm Scomi Marine Bhd began in earnest on Tuesday last week, sending its shares up 30% to 45 sen.
In spite of all the hoopla that has surfaced about the intentions of its powerful suitors, the message it wants most to get through to investors is a simple one that of a turnaround.
Early signs of its comeback cropped up when StarBiz broke the news last month that Scomi is believed to be among the frontrunners to snag the risk-service contract for the Tembikai and Cenang marginal oilfields off Peninsular Malaysia.
The two fields are said to be lucrative as they are in shallow waters and have the most reserves, with the contracts valued at between US$200mil (RM620mil) to US$400mil (RM1.2bil) each.
While the company is tight-lipped about this, Wan Ruzlan Iskandar Wan Salaidin, who is president of its oilfield services market units, says in an interview that Scomi is indeed pinning its hopes on the O&G sector.
Unbeknown to some, Scomi Group is one of only four firms in the world that supply drilling fluids services, and the only one in Malaysia. The others are international players Baker Hughes, Schlumberger and Halliburton.
As it stands, Scomi's share is only US$6mil of this US$5bil industry, although it controls about 40% of the domestic market.
From 2008, the firm's oilfield services unit, which is parked under Scomi Group, has scaled down and dropped a significant number of its international operations to 46 locations and 26 countries.
It no longer has a presence in most of the western hemisphere, choosing instead to focus on the East, and has made Dubai and Kuala Lumpur its two regional hubs.
As a result, turnover for Scomi Oilfield Ltd slid from US$460.62mil in 2008 to US$355.67mil last year. But even with its business reduced by almost a third, its earnings before interest, taxes, depreciation and amortisation (EBITDA) has returned to pre-2008 levels, according to the company.
“We had to cut the fat,” Wan Ruzlan says frankly.
Looking ahead, its oilfield services division is participating in tenders valued at US$1bil, with the Malaysian bids alone worth RM1bil.
While Wan Ruzlan hesitates to estimate its chances, he offers that Scomi is playing to win in key markets including Malaysia, Thailand and especially Indonesia, where it has had a success rate of more than 50%.
“Indonesia is producing well below what it used to. It was formerly an Opec (Organisation of the Petroleum Exporting Countries) member producing 1.2 million barrels per day.
“It is their intention to get back into Opec. They produce 900,000 barrels per day currently. They have to spend aggressively (to increase production),” he says, noting that the lacklustre production was blamed on a lack of new fields.
Industry executives, however, point out that the main reason for this is bureaucracy and inefficiency.
“Indonesia is going through a nationalisation programme. It is buying over assets from the foreign companies and giving them new blocks. Pertamina (Indonesia's state oil corporation) will take over the old wells,” Wan Ruzlan says.
“Sometimes the foreign production sharing partners don't want to put in a lot of investment. When Pertamina takes over, they will know how to boost production. They have the expertise, and they buy the personnel as well.”
Another notable achievement by the company, he adds, is the creation of a “floater” which can be likened to a workboat that provides mobile drilling fluid and waste management.
Scomi is the first to use this technology, Wan Ruzlan claims. “This is our blue ocean. There is no single service company that has done this. We started it with Petronas and other oil firms got interested.
“We are the only one with the capability to mix and treat the mud on a floater. Right now there is a lot of congestion for the vessels to get to the shore base. And the port operators charge a bomb. But on the sea there is no third party like a landlord who rents out the land. And any support for these drilling services is near the rig, not at the beach.”
He says Scomi only has one floater which is jointly-owned. The company plans to have its own soon, he adds, but declines to elaborate due to tender sensitivities.
On the marine support side, there is also a plan to phase out over the next 24 months its lower-margin coal barging operations to focus on oilfield services.
Wan Ruzlan explains that Scomi Marine has a fleet of 100 offshore support vessels currently and intends to expand, but does not provide figures.
On the matter of the group's restructuring, a Scomi spokesperson says it is on track to be completed by year-end. The firm had proposed a few months earlier an exercise to merge Scomi's oilfield services unit with Scomi Marine, creating an integrated O&G marine and drilling services supplier.
Post-restructuring, Scomi will hold an effective 66% stake in Scomi Marine from 43% currently.
“That makes it easier for the market to rate and understand us. Now we are half here and half there. The merger will our integrate resources, and with a bigger company we have a bigger balance sheet and can take on larger projects,” he remarks.
In an effort to raise its profile, Scomi recently met with over 30 analysts and fund managers, its first such engagement in two years, as well as held private sessions with select investors.
“The analyst briefings were on the cards for a while. We would have been done them in the final quarter anyway in view of the merger. But events have preceded,” the spokesperson says, referring to the deal struck with IJM.
Having spent a couple of years mired in kitchen-sinking exercises and running up impairment charges on vessels and goodwill, which has cut its debt load by RM1.1bil, the group maintains that chunky provisions are mostly a thing of the past. Its RM500mil in outstanding bonds has also been paid in full.
The group's total order book stands at RM3.03bil, with the O&G portion taking up RM2.1bil. Notably, the combined EBITDA from Scomi Marine and oilfield services for the first half of the year came in at RM125mil, which, if annualised, would surpass the results of the past two years.
Scomi is even targeting EBITDA of RM300mil for the financial year ended Dec 31, 2013.
Meanwhile, analysts who had attended the briefing expressed feeling “less negative” and “slightly positive” about the IJM-Scomi deal.
“From an investment standpoint, we feel that IJM's move into Scomi was timely given IJM's cheap effective entry cost of 30 sen versus Scomi's current price of 43 sen,” CIMB Research explains in a note to clients.
“We have turned less negative on the overall deal given greater clarity on Scomi's prospects, which would be boosted if it secured a marginal field contract.”
But others, wary of Scomi's chequered history, have been slow to warm to this collaboration. For one, AmResearch advocates the wisdom of waiting.
“We believe IJM would still need to show some concrete results to prove its investments in Scomi are indeed value-accretive. We are also unsure about the exact structure IJM can participate in any partnerships with Scomi notably in the oil & gas field,” it tells investors.
These sentiments are not lost on the company. “Yes, we have to change the perception (about Scomi),” the spokesperson notes.
“We hope to continuously win more awards and surprise the market.”