Tanjung Offshore: Maintain Sell - More pain to come?

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: MAYBANK

Price Call: SELL

Target Price: 0.70

Cost cutting only half done; maintain Sell. TOFF's 2011 results were weaker than expected with a net loss of RM26m versus our RM14m net loss forecast. In addition, it seems that TOFF is not through with cost cutting and is likely to shutdown Tanjung CSI this quarter. Its poor cashflow and high gearing (1.7x) will necessitate a major cash infusion. We retain our Sell call with an unchanged TP of RM0.70 after rolling valuations to 2012, but on an unchanged 0.6x PBV target.

Maybank Research 28 Feb 2012

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TGOFFS

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: HWANGDBS

Price Call: SELL

Target Price: 0.70

Tanjung Offshore; Fully Valued; RM0.93
Price Target: RM0.70; TOFF MK
4Q11 result far below expectations. Hit by cessation cost in the UK and cost overruns in engineering segment. Maintain Fully Valued call and RM0.70 TP.

Source: HwangDBS Research 28 Feb 2012

Tanjung Offshore - Engineering division may yet stall recovery

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: AMMB

Price Call: SELL

Target Price: 0.71

We maintain our SELL rating on Tanjung Offshore (Tanjung) with an unchanged fair value of RM0.71/share, pegged to a fully-diluted FY12F PE of12x ' at a 25% discount to the oil & gas sector's average of 16x. 

Tanjung's FY11 results came in below expectations, recording a loss of RM55mil vs. our loss estimate of RM25mil and street's RM5mil. Thegroup did not declare any dividend for FY11, as expected.

While the group chalked in RM30mil (GBP6mil) closure costsat its Citech operations in the UK, as forewarned by our report on 13 Februarythis year, Tanjung's continuing losses from its engineering division and weakermarine operations spilled more losses than even our belowconsensusprojection. 

The engineering equipment supply division's 4QFY11 loss roseto RM33mil from just RM3mil in 3QFY11 due to insufficient new orders tocompensate for completed projects and impairment of receivables due to poor execution.While vessel utilisation was stable at around 88%, this segment's 4QFY11 EBITstill declined 18% QoQ  to RM13mil due tothe dry docking of two vessels. 

Currently, just two vessels are on spot charters, i.e. TanjungGelang, a well-testing vessel and Tanjung Manis, a utility supply vessel. WithPetronas expected to award the next batch of charter contracts for 17 vesselsin March 2012, we expect the group's remaining vessels to be secured on along-term basis by 2Q2012.We maintain FY12F-FY13F earnings as we expect some earningsimprovement after its 'kitchen-sinking exercise'. But we expect recovery in1HFY12 to be still slow, given the slow pace of order accretion for Tanjung's engineeringequipment supply division, which we understand has a high-cost structure. Weintroduce an FY14F net profit with a growth of 26% based on a 10% increase in engineering/equipmentsales.

With a tender book of RM850mil, the group's total order bookstands at an estimated RM558mil currently comprising RM300mil for marinecharter, RM120mil equipment, RM88mil maintenance and RM50mil for Mobile OffshoreProduction Unit services. 

We expect an earnings recovery from the absence of Citech lossesin 1HFY12, but it is unlikely to be significant enough to justify a re-ratingat this juncture due to the group's high-cost engineering division. 

Tanjung is currently trading at a demanding fully-diluted FY12FPE of 16x. Although it is trading at an undemanding P/BV of 0.9x, we willreview our rating pending a sustained recovery in its engineering division.

Source: AmeSecurities 

TGOFFS - Cessation of Citech's operation

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: HWANGDBS

Price Call: SELL

Target Price: 0.70

Tanjung Offshore; Fully Valued; RM0.925
Price Target: RM0.70; TOFF MK


Tanjung Offshore announced that its wholly-owned subsidiary, Citech Energy Recovery Systems UK Limited (Citech) has commenced the cessation of business operations with effect from 10 Feb 12. Citech is primarily involved in the manufacturing and marketing of waste heat recovery units to major O&G customers in the European and US markets and Tanjung Offshore has invested ''6.70m (~RM26.8m) in Citech. The cessation of Citech's operation is due to the sluggish and highly competitive market which has severely affected its profitability. The company will incur cessation expenses of ''6.70m (~RM24.8m) due to various expenses including termination payment, provisions for warranties on completed projects and other professional fees.

The cessation of operation costs will likely impact its FY11 earnings which were not imputed earlier on. We are currently reviewing our numbers in view of the unexpected cessation expenses. Also, we understand from the company that there could be other provisions related to its engineering business in Malaysia to be booked in its 4Q11 results.

We reiterate our Fully Valued call with RM0.70 TP at this juncture, pending more details on the scale of losses from its engineering division, which may affect the company's cash flow in view of the its debt-laden balance sheet with RM514m net debt (1.4x net gearing) as at Sep11.

Source: HwangDBS Research 13 Feb 2012

Tanjung Offshore: Maintain Sell - Closes Citech, Tanjung CSI next?

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: MAYBANK

Price Call: SELL

Target Price: 0.70

Maintain Sell. TOFF's move to shut down Citech and take a heavy hit in 4Q11 will be painful in the short term but operationally positive in the longer term as the Group takes constructive steps to restructure its businesses. We think it will address its troubled engineering equipment division next. While we laud these efforts, we are maintaining our Sell call on concerns over its high gearing and the probability of further impairments. Last Friday's spike in share price (+10%) is fundamentally unwarranted in our view, and is an opportunity to exit.

Maybank Research 13 Feb 2012

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Citech closure to deliver 4QFY11 loss

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: AMMB

Price Call: SELL

Target Price: 0.71

Tanjung Offshore (Sell): Disappointment ahead

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: MAYBANK

Price Call: SELL

Target Price: 0.70

Downgrade to Sell, TP cut to RM0.70 (-14%, to 0.6x PBV), ahead of a disappointing 4Q results, hit by a confluence of issues at its engineering equipment division. For this, we forecast TOFF to end 2011 with a higher net loss of RM14m, making consensus and our initial estimates untenable. The stock is unlikely to re-rate until the company shows tangible signs of managing costs effectively.


Maybank research (21 December 2011)

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Tanjung Offshore (Buy): Steady but small earnings

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 0.98

Secures a 5-year contract extension for maintenance works. This job, worth RM43m spread over 5 years, is operationally positive but small in value and hence, is financially neutral. No change to our forecasts. Ekuinas' potential corporate exercise involving TOFF could be a catalyst. Reiterate Buy with an unchanged RM0.98, based on 0.8x book.

Maybank research (1 December 2011)

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Tanjung Offshore RM0.85: Buy

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 0.98

Validated; results getting closer in line
 
Maintain Buy-awaiting catalyst. TOFF's 3Q11 results validate ourRM1.4m net loss forecast for 2011. Cost management remains aproblem with earnings derived mainly from vessels supporting its otherloss-making segments, which caps earnings potential. Still, we look forcatalyst from its new PSVs and a resolution to losses at Citech. At thisjuncture, TOFF trades at historical trough P/BV valuations, unwarrantedby its improving outlook over a 24-month period. Reiterate Buy call withan unchanged target price of RM0.98, based on 0.8x book.


Maybank research (17 November 2011)

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Tanjung Offshore wins Carigali contracts for 3 OSVs

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: OSK

Price Call: SELL

Target 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.

Tanjung Offshore turning attractive, upgrade to buy

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 0.98

Tanjung Offshore Bhd
(Oct 3, 73 sen)
Upgrade to buy at 74 sen with target price of 98 sen: TOFF's calculated move to order two new platform supply vehicles (PSV) could benefit it well, as we anticipate an upcoming slew of Petronas PSV contract awards in 2012. While financing and operating risks are concerns, the share price downside is limited with the stock currently trading below its 2008's price-to-book value (P/BV) trough valuations, coupled with improving prospects.

The stock trades at just 0.6 times P/BV, which is not justified considering that profits will start to turn in from 2012. Our 98 sen target price (0.8 times P/BV) offers 32% upside potential.

TOFF has contracted Muhibbah Engineering and Labuan Shipyard to build two PSVs for RM200 million. The two PSVs are scheduled for delivery in 2013. We would note that both shipyards have no PSV building track record.

We gauge these PSVs to be of medium range specifications (i.e. 3,000-4,000 dwt, around 80 metres in length) and capable of deepwater operations. Based on these terms, the RM100 million price tag per vessel appears fair compared with with recent newbuilds. Bumi Armada recently ordered a pair of PSVs from Nam Cheong for over US$40 million (RM128.4 million) each with a 2012 due date. ''

No contracts in hand but the probability of securing charters is high. We understand that the new orders are not backed by existing charter contracts. However, the likelihood of securing charters for PSV is higher compared with other vessels in the market. It is the preferred transportation choice for its speed, especially in the offshore deepwater field as it covers longer distances at a shorter period vis-''-vis its peers.

We expect these newbuilds to be targeted for domestic charter contracts which are expected to come in by end-2012, just before their delivery date. TOFF will likely finance the purchases on an 85:15 debt-to-equity basis. As such, net gearing should rise from 1.4 times now to 1.9 times.

Based on an estimated day rate of US$30,000 each vessel should deliver RM32.9 million in revenue and RM8.9 million in net profit (27% margin) after netting off depreciation cost (-RM5 million), interest expense (-RM6 million; 7% interest), administration, crew costs (- RM10 million) and taxes (-RM3 million). As such, these two vessels could add about RM17.8 million a year to TOFF's future net profit. We have not imputed this into our forecasts as the impact is not during our forecast period. 'Maybank IB Research, Oct 3


This article appeared in The Edge Financial Daily, October 4, 2011.

Building two deepwater PSVs

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: AMMB

Price Call: SELL

Target Price: 0.71

HwangDBS cautious on Tanjung Offshore

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: OSK

Price Call: HOLD

Target Price: 1.29

HwangDBS Vickers Research Sdn Bhd remains cautious of Tanjung Offshore Bhd's outlook given the slow performance of its non-marine chartering division which has been a drag on rofitability.

Tanjung Offshore has been awarded long-term charter contracts from Petronas for three offshore service vessels (OSVs) collectively valued at RM50 million.

The long-term contracts for the OSVs are for a period of between one and three years, effective June and July this year, respectively, with options to extend for a period of between one and two years.

HwangDBS said there was no change to its earnings forecast on Tanjung Offshore as it has imputed utilisation rate of 90 per cent for financial year 2011, which is likely given that all its 16 vessels are currently chartered out.

Meanwhile, OSK Research Sdn Bhd said it has no change to its financial year 2011 and 2012 forecasts as it had earlier assumed some orderbook replenishment for its vessels.

It maintained a "neutral" call on Tanjung Offshore with the fair value unchanged at RM1.29.

"At this junction, we are not too optimistic about the company given its two consecutive quarterly net losses, even though the bulk of its OSVs are on long-term charter with Petronas and its production-sharing contracts contractors," said the research house.

It said the immediate catalyst to Tanjung Offshore's share price recovery would be the listing of Bumi Armada, which is expected to boost the sentiment of all oil and gas vessel players in Malaysia. it added. -- Bernama

TGOFFS - AmResearch has Sell on Tanjung Offshore, cuts fair value to RM1

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: AMMB

KUALA LUMPUR: AmResearch reaffirms its Sell rating on Tanjung Offshore and cut its fair value to RM1 a share from RM1.33'' a share previously) ' pegging its FY11F earnings to a PE of 20 times ' following another set of weak numbers.

'We are cutting our estimates for FY11F-FY13F by 45%-54% to RM16mil-RM18mil following lower margin assumptions from 8%-9% to 7%-7.5% and cuts in revenue assumptions by 20%-30%,' it said on Friday, May 20.

AmResearch said Tanjung was in the red for the second consecutive quarter, with a larger magnitude of RM3mil for 1QFY11.

The losses are attributable to about RM3mil in losses from its UK-subsidiary Citech Ltd. Currently the unit has only about US$15mil in orderbook for the next 18 months and this is not sufficient to cover its sizeable operating costs.

Another factor is the weaker earnings from vessel chartering division. Three vessels were lying idle during 1QFY11, translating into a utilisation rate of about 80%. Nonetheless, it has since been operating at full capacity although six of the vessels are currently under spot contracts.

AmResearch said the losses for the quarter was also contributed by a net loss of RM4.7mil incurred from the disposal of its stake in Hercules Tanjung Asia s/b, a rigs provider.

TGOFFS - Tanjung Offshore cut to 'neutral'

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: OSK

Tanjung Offshore Bhd was downgraded at OSK Research Sdn Bhd, which said the Malaysian oil and gas services provider may have slipped to a loss in the first quarter because of cost overruns.

The stock was cut to “neutral” from “trading buy” and its fair value reduced to RM1.29 from RM2.18, Jason Yap, a Kuala Lumpur-based analyst at OSK, wrote in a report today. -- Bloomberg

TGOFFS - Tanjung Offshore: Caution ahead; flashing red flags

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: MAYBANK

Tanjung Offshore Bhd
(April 27, RM1.29)
Maintain sell at RM1.39 with target price of RM1.07: We maintain our 'sell' call as 1QFY11 earnings will likely miss street expectations again. Cost management strategies and operating prospects remain the key concerns. An equity cash-call could ensue should the cash situation worsen. Tanjung will also suffer an RM8 million penalty cost for early bond redemption. Valuations are expensive and consensus forecasts are aggressive. Nonetheless, Ekuiti Nasional's (Ekuinas) next move remains a wild card.

Contrary to market expectations of an earnings rebound in 1Q11, we caution that Tanjung will likely remain in the red (losing RM2 million to RM5 million) with a contracting revenue trend (down 30% to 50% quarter-on-quarter). Losses will be exacerbated by the ongoing cost overruns at its UK-based process equipment unit, Citech Energy Recovery Systems, and Tanjung CSI Sdn Bhd. Its vessel operations will also see weaker earnings. Three of its vessels were idle in 1Q as Petroliam Nasional Bhd embarked on early contract termination.

We remain apprehensive over Tanjung's ability to turn around its engineering equipment, maintenance and drilling and platform divisions. Replenishment rates at these divisions have been poor and sliding. Tanjung will incur RM10 million on dry-docking costs for its three vessels (MV Tanjung Pinang 1, 2, 3) scheduled in 2011. Although most of the idle vessels will be contracted by 3Q, charter rates are likely to be flat with just one- to two-year tenures.

We cut 2011/13 earnings by 40% to 126% ahead of the poor 1Q and erratic earnings for the next nine months. Earnings visibility will remain opaque, making forecasting a challenge. We feel management needs to improve on its cost management, restructure its non-core operations and realign the business direction. We do not rule out the need for a cash call in the mid-term, given the tightening cash flow and high working capital requirements. Net gearing stood at 1.4 times as at December 2010.

Tanjung will refinance its long-term debt to stretch repayment. It will retire the RM110 million bonds and Islamic medium-term notes (RM120 million) and refinance them with a conventional term loan, which will stretch its principal repayment by four years to 2018. However, this would lift interest costs, considering that blended financing rates will grow from 5.6% to 6.0%. Tanjung will suffer a one-off cost of RM8 million from the early redemption, which will be recognised in 2Q. ' Maybank IB Research, April 27


This article appeared in The Edge Financial Daily, April 28, 2011.

TGOFFS - OSK 'neutral' on Tanjong Offshore

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: OSK

OSK Research is neutral on Tanjong Offshore Bhd despite it being awarded a RM15 million award for the provision of valve repair and maintenance services for Murphy Sarawak Oil Co Ltd.

It also maintained Tanjong's target price at RM2.18 based on a price earnings ratio of 15 times the financial year 2011 earnings per share.

"It is our review that unless the company consistently secures new contracts, this newly-secured RM15.0 million job is immaterial compared with its yearly revenue of over RM500.0 million," it said in a research note today.

Meanwhile, HwangDBS Vickers Research said the contract was unlikely to contribute much to Tanjong's earnings forecast.

"We project the maintenance services segment to only contribute five per cent of our financial year 2011 forecast earnings before interest and taxes," it added. -- Bernama

TGOFFS - Tanjung Offshore slips, Maybank IB Research sees disappointing earnings

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: MAYBANK

KUALA LUMPUR: Shares of TANJUNG OFFSHORE BHD [] slipped in afternoon trade on Wednesday, April 27 as Maybank Investment Bank Research kept a Sell on the stocks and target price of RM1.07.

At 3pm, it was down three sen to RM1.36. There were 11,170 shares transacted at prices ranging from RM1.36 to RM1.39.

Maybank IB Research said it expected Tanjung Offshore's 1Q 2011 earnings to likely miss street expectations again.

'Cost management strategies and operating prospects remain the key concerns. An equity cash-call could ensue should the cash situation worsen.

'Tanjung Offshore will also suffer an RM8 million penalty cost for early bonds redemption. Valuations are expensive and consensus forecasts are aggressive. Nonetheless, Ekuinas' next move remains a wild card,' it said.

TGOFFS - AmResearch reaffirms Sell on Tanjung Offshore

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: AMMB

KUALA LUMPUR: AmResearch has reaffirmed its SELL rating on TANJUNG OFFSHORE BHD [] with an unchanged fair value of RM1.33 per share ' pegging fully diluted FY11F PE to 16 times.

Tanjung Offshore was reprimanded by Bursa Malaysia due to a 37% deviation in the reported net profit for FY09.'' Its earnings were RM3 million versus RM4.9 million initially reported during the release of 4QFY09 numbers.

The large deviation could be due to the over recognition of earnings which were related mostly to the insurance claims made by its associate company, Cendor Mopu Producer Ltd, and post acquisition profit in respect of its subsidiaries.

'We gather it was initially recommended by its auditors for the items to be included in FY09 earnings although somehow after an audit review, these items were not deemed to be appropriate for recognition in FY09. While it does not look good on the company, we view this as a one-off event.

'However, looking forward, while the oil and gas sector is very much positive given the expected strong pick-up in E&P works, we are not too positive about Tanjung Offshore,' it said.

AmResearch said while valuation is demanding ' currently trading at FY11F PE of 17 times, it was also cautious about the company's execution.

'Elsewhere, while it makes sense for Tanjung to bid for the right to develop the marginal fields'' ' it supplies MOPU and engineering equipments ' Tanjung's balance sheet is quite highly-leveraged with a current net gearing of 1.4 times,' it said.

TGOFFS - Tanjung Offshore's earnings remain volatile

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: MAYBANK

Tanjung Offshore Bhd
(March 1, RM1.54)
Maintain sell at RM1.65 with target price of RM1.07: Tanjung Offshore's results continue to be erratic, missing our forecasts and consensus. We remain concerned over its cost management strategies which have resulted in poor earnings. Valuations are expensive while consensus forecasts are overly aggressive.

In light of the earnings uncertainties, we adjust our target price valuations to 0.8 times in price-to-book value (PBV) terms. We had used price-earnings ratio (PER) valuations previously.

The company's reported net loss of RM116,000 in 4Q took full-year earnings to RM7 million (+128% growth year-on-year), below our and consensus forecasts of RM8 million to RM9 million.

Tanjung Offshore is unlikely to perform in 2011. It will incur RM10 million in dry-docking costs for its three vessels (MV Tanjung Pinang 1, 2, and 3) scheduled in 2011. We are apprehensive over its ability to turn around its engineering equipment, maintenance, and drilling and platform divisions, which have been in the red for the past few consecutive quarters. The firm may also suffer a one-off cost of between RM7million and RM8 million from the early redemption of its bonds as it plans to refinance its debts to conventional term loans in 1Q11.

We slash FY11 and FY12 earnings forecasts by 42% to 56%, taking into account the erratic earnings performance. Earnings visibility will remain opaque, which makes forecasting a challenge. With these uncertainties, we change our valuation basis from a PER of eight times 2012 earnings to PBV valuations. We now value Tanjung Offshore shares at RM1.07 based on a PBV ratio of 0.8 times.

Ekuinas' intentions with regards to Tanjung Offshore are unclear now, but we think it could eventually be a platform for Ekuinas to consolidate the oil and gas service providers in the market. This may enhance value for minorities in the long term. For now, Tanjung Offshore's valuations are extremely stretched at a PER of 53 times 2011 earnings and a PBV ratio of 1.2 times (historical). ' Maybank IB Research, March 1


This article appeared in The Edge Financial Daily, March 2, 2011.