THE OUTLOOK FOR exploration & production activity in the oil & gas industry remains as robust as oil prices and this has benefited Technics Oil & Gas.
The leading full service integrator of compression systems and process modules for the global offshore oil and gas sector has been improving its profitability by targeting subsea projects.
Its customers are mainly oil and gas majors, leading FPSO operators and end-users.
It recently posted net profit after tax that grew 32% year-on-year to S$21.0 million for the nine months ended 30 June 2012 (9M2012).
It declared an interim cash dividend of 5 cents and a special dividend of 3 cents, payable on 24 August. Based on its recent stock price of S$1.015, the tax-exempt dividend translates into a dividend yield of 7.9%.
The Group’s 9M2012 revenue increased 21% y-o-y to S$124.7 million, which is already more than the Group’s FY2011 top line of S$124.1 million.
At the Group’s investor briefing yesterday afternoon, executive Chairman Robin Ting highlighted that its 3Q2012 revenues have dropped because the Group is getting more subsea contracts, but this also means that gross margins will be higher.
9M2012 gross margins were 50.4%, compared with 46.8% in FY2011. The Group’s balance sheet remained strong and it had cash balances of S$25.4 million as at 30 June 2012.
Its net gearing ratio decreased from 0.42 as at 30 September 2011 to 0.12 as at 30 June 2012.
The Group has an outstanding order book of approximately S$85.0 million and this will be progressively delivered through to 1H FY2013.
Yesterday, AmFraser maintained its ‘Buy’ call on Technics with a target price of S$1.22. OSK-DMG also maintained its ‘Buy’ call on Technics with a target price of S$1.28 on Wed.
Below is a summary of questions raised at the briefing and the replies made by Robin Ting, executive director David Tay and CFO Maggie Lam.
Q: Please provide an update on your acquisition of the fabrication yard in Vietnam.
We need a yard in Vietnam because Chevron needs local content for the gas fields that they are developing. Four or five platforms will be built in Vietnam.
We expect to complete the yard by August but commencement of operations is subject to the relevant approvals from the Vietnam government.
The yard will cost us up to S$10 million, which we consider to be a bargain. We intend to upgrade it for less than S$2 million.
Q: Please give an update on your subsidiary listing.
The subsidiary to be listed, Norr Offshore, currently contributes about 30% to Group profit before tax. We intend to raise about S$29 million by issuing new shares amounting to 20% of its share capital.
Our stake will be diluted from 54% to 38%. Post listing, its earnings will come under the Group's share from associates.
Q: When will the listing happen?
As this is a primary listing on Gretai, the listing process can take as long as 15 months. We expect it to be listed in June 2013.
Q: What do you intend to do with the IPO issue proceeds?
We can pay more dividends.
Q: Do you have any TDR issue in the pipeline?
No. The TDR market is not performing well now. Technics' TDR is an exception.
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There seems to be a contradiction as more contracts would mean its revenues have increased instead of dropped. The sentence may be missing some important part which perhaps could have thrown some light on why revenues have dropped but yet subsea contracts have increased. Most likely it is a case of change in composition structure in its sources of revenue (substantial reduction of off-shore contracts (in terms of volume) vis-a-vis the increase in number of subsea contracts)