KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research is maintaining its 'buy' call on Scomi Energy (SES) with unchanged target price of RM1.24 on moves to raise war chest.
"Scomi Energy (SES) proposed a renounceable rights issue of up to RM141 million nominal value of 5-year redeemable convertible bonds on the basis of RM6 in nominal value for every 100 existing shares.
"The RM141 million proceed raised will be used to repay the bridging loan (RM45 million) for subscription of 30 per cent equity interest in Ophir field, working capital for existing business and development of Ophir field (RM92 million) and defray estimated expenses (RM3.5 million).
"The conversion price will be at 10-35 per cent discount to 5 day VWAMP on a price fixing date and convertible at any time after the second anniversary of the issue date up to the maturity date. The deal is expected to be completed in first quarter (Q1) of 2015.
"Assuming conversion price of RM0.75 and full conversion of the bonds, shares base will be enlarged by 8 per cent from 2.34 billion shares to 2.53 billion shares. Gross gearing will fall from 0.7 times to 0.6 times.
"However, we believe the dilution will be minimal or even offset due to only convertible after 2nd anniversary of the issue date; and potential more
integrated project contracts win," said HLIB in its research notes.
HLIB said it is positive on the fund raising through right issue of convertible bond as this will help to strengthen SES’s balance sheet with minimal dilution effect in near term.
"Besides funding for Ophir field, we believe the fund raised might also be preparation for potential integrated project management (IPM) contract win in the future.
"We understand that integrated project management (IPM) is a global trend as national oil companies and oil majors are outsourcing turnkey projects due to shortage of talents.
"By building its integration capability which includes project management, SES can handle projects from marginal, brownfield and enhanced oil recovery which presents enormous opportunity. Potential markets are Malaysia, Indonesia and Pakistan.
"Latest orderbook stand at RM5.3 billion with 48 per cent contract value from Petronas. SES is targeting to expand its orderbook to RM7-8 billion in the next 12-18 months."
"SES has commercialised graphene drilling fluids and the market size is estimated at around US$2 billion. We expect the new products (including base oil, production chemical and shale’s chemical) to strengthening SES’s foothold in oilfield fluid market and improve margin going forward. Another new product, microwave cutting treatment is progressing well and expected to commercialise in Q1 current year 2015."