October 24, 2011

Tanjung Offshore wins Carigali contracts for 3 OSVs

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: OSKPrice Call: SELLTarget Price: 0.53



Tanjung Offshore
(Oct 24, 85 sen)
Maintain sell with revised fair value of 53 sen from 70 sen: Last Friday, Tanjung Offshore Bhd announced that its 100%-owned subsidiary, Tanjung Offshore Services Sdn Bhd, had been awarded a contract by Petronas Carigali Sdn Bhd for the provision of three offshore support vessels (OSVs) for a total charter contract of up to two primary years, valued at about RM27 million. ''

However, as we expect its vessel earnings to be affected by negative contributions from its other divisions, we are downgrading FY11/FY12 earnings by 24% to 52% and maintaining our 'sell' call.

We see the continuing dishing out of contracts by Carigali as positive for the company as its contracts already make up about 38% of the company's 16 contracts for its 16-vessel fleet. Hence, we believe this division will continue to lead Tanjong Offshore's overall earnings. This is because we had assumed some order book replenishment for it vessels. Hence, we are keeping our vessel earnings contribution unchanged for now.

Although the vessel division is still the pillar of its business, its contribution is expected to be eroded by the company's other divisions, especially its process equipment division, Citech, which was supposed to have broken even by now. But we gather that it is still in the red due to sluggish business activities amid the slowdown in the global economy, coupled with some potential provisions that need to be made to reflect the true value of the division.

Hence, we are downgrading our FY11/FY12 earnings by 24% to 52% to reflect the group's potential loss in earnings.

Our fair value for the stock has also been downgraded to 53 sen (previously 70 sen), based on the existing price earnings ratio (PER) of 12 times FY12 earnings per share (EPS), following our FY12 earnings downgrade.'' ' OSK Research, Oct 24



This article appeared in The Edge Financial Daily, October 25, 2011.

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