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Saturday, 15 July 2017

Barakah’s Sarawak play

Heavy burden: Barakah’s largest overhead is the KL101 pipelay barge, seen here, that is likely to remain idle for financial year 2017 and in turn pose a heavy burden on its cash flow, according to Maybank Investment Bank Research.

Heavy burden: Barakah’s largest overhead is the KL101 pipelay barge, seen here, that is likely to remain idle for financial year 2017 and in turn pose a heavy burden on its cash flow, according to Maybank Investment Bank Research.

The emergence of a company linked to Sarawak tycoon Yaw Teck Seng in Barakah has piqued interest

THE emergence of Samling Energy Sdn Bhd, a company linked to Sarawak tycoon Tan Sri Yaw Teck Seng, as the second-largest shareholder in Barakah Offshore Petroleum Bhd has put the mid-cap oil and gas (O&G) offshore pipeline service provider back on the radar of investors.

Given Barakah’s flagging fortunes, Samling Energy’s entry with a 10% strategic stake is a “confidence booster” for the former.

It made a net loss of RM4.59mil for the first quarter ended March 31, 2017 (1Q17) on RM76.8mil revenue that came in about a quarter lower year-on-year as work order slowed substantially during the quarter.

Through a Sarawak connection, Barakah can leverage on a partner with strong financials and business network to expand into the state, where most of the O&G jobs are.

Yaw’s Samling group is one of the largest conglomerates in Sarawak with a presence ranging from Asia to Australia and North America.

Its main business is in the plantation, forestry and property development sectors, and via Samling Energy, it has a presence in the O&G sector.

The group also has a quarrying business and distributes Bentley cars in Malaysia.

Early this year, Forbes in its ranking of Malaysia’s 50 Richest estimated that the 79-year-old patriarch and his family have a net worth of US$815mil or RM3.5bil.

In comparison, Barakah’s market cap currently stands at RM528mil.

Nik Hamdan: We hope to be able to share resources and business networking so we can be more competitive by pushing cost down and getting consistent workflow.
Nik Hamdan: We hope to be able to share resources and business networking so we can be more competitive by pushing cost down and getting consistent workflow. 

Samling Energy’s entry into the company early this week came about when it acquired a further 5.9% held by United Power Group Holdings Ltd from Barakah’s founder and chief executive officer Nik Hamdan Daud.

According to Barakah’s filing with the stock exchange, Nik Hamdan sold 82.56 million shares held under United Power to Samling Energy at an undisclosed price.

Barakah shares have been trading at the 60-sen level in the past four weeks. They went up to 66 sen on Wednesday, before easing to 64 sen yesterday.

Last month, United Power boosted its holding in Barakah by 48.62 million shares to 82.56 million shares, which was subsequently sold to Samling Energy.

With this, Samling Energy emerged with 10%, while Nik Hamdan’s interest in the company has been reduced to 38.6%.

Yaw is deemed interested by virtue of his shareholding in Yaw Holding Sdn Bhd, which owns United Power’s holding company Samling Energy.

Additionally, Felda Investment Corp Sdn Bhd, which has 8.91% in Barakah, is now the company’s third-largest substantial shareholder.

Nik Hamdan, when contacted, says “welcome Samling group in believing in the capabilities of Barakah at this challenging time”.

“I personally look forward to working closely with the group,” he tells StarBizWeek.

He adds that the company hopes to participate in more of Samling group’s overall energy aspirations and related activities on top of Barakah’s current jobs.

“We hope to be able to share resources and business networking so we can be more competitive by pushing cost down and effective in getting consistent workflow.”

Samling Energy, which is based in Miri, Sarawak, has been in the O&G sector for more than 20 years and owns various types of assets that are said to be complementary to Barakah’s field of operations. Its work is mainly in this region, Australia, Africa and the Gulf of Mexico.

As for Barakah, besides providing offshore pipeline services, it is also involved in offshore transportation and installation works, hook-up and commissioning, onshore construction, underwater services and the chartering of marine vessels and equipment.

It gets its jobs from companies like Petroliam Nasional Bhd (Petronas), Shell and Petrofac.

Although Barakah is a name associated with O&G in Peninsular Malaysia, it has a fair amount of work in Sarawak.

In December 2015, it won a contract from Petronas Gas Bhd (PGas) for the provision of the repair and maintenance of the Sabah Sarawak Gas Pipeline.

The Sabah Sarawak Gas Pipeline is a network of onshore pipelines that run for 503km, linking the Sabah Oil and Gas Terminal in Kimanis, Sabah, and the Petronas LNG Complex in Bintulu, Sarawak. The contact is for two years to end in November this year and PGas has the option to extend the contract for an additional year.

According to industry insiders, it is here that Barakah’s relationship with Samling group grew when it tapped on the latter’s machinery and interior knowhow to undertake that scope of work.

Last month, the company won two contract awards worth close to RM100mil, one of which is a contract from Samling Resources worth US$14.3mil for the provision of well intervention vessels, support vessels and services to decommission the Chinguetti and Banda deepwater oil field in Mauritania, West Africa.

The other contract was from Asean Bintulu Fertilizer (ABF) for the provision of basic and detailed engineering, procurement, construction and commissioning package for rejuvenating the urea shiploading facilities project at the ABF plant in Bintulu.

With Samling in, will Barakah seek to diversify out of O&G?

Nik Hamdan says no. “We wish to expand in terms of scope of services in both upstream and downstream. And the way we approach and invest in projects is so that we can have long-term contracts to smoothen out the volatility of short-term contracting.

But all this will be within the O&G industry. “Based on available news and ambitions, there is expected to be enhanced activities (in the O&G sector) for the next five years. It will be substantial.”

Recall that the Sarawak state government recently planned to establish a 100% state-owned offshore O&G exploration company, Petroleum Sarawak.

More immediately, however, Barakah’s prospects seem challenging.

Largest overhead

While the company has an order book close to RM1.1bil, a fair bit of it is on a call-out basis and subject to clients’ capital and operating expenditures.

Its largest overhead is the KL101 pipelay barge that is likely to remain idle for financial year 2017 (FY17) and in turn pose a heavy burden on its cash flow, according to Maybank Investment Bank Research.

To ease the financial burden, the research house does not rule out an asset impairment or equity stake sale of the KL101 asset.

On this, Nik Hamdan says that the company is looking at a potential ownership restructuring of the vessel to lessen its impact on overhead cost to the bottom line.

Even so, he points out that the company’s cashflow position is healthy.

“We can weather this current slow cycle for some time. Our gross gearing ratio is still low at 0.5 times.”

Apart from the lower revenue in Q1’17, gross profit margins slipped to 22.0% in Q1’17 from 27.8% in the previous corresponding period despite the company’s continuous cost-cutting measures, noted Malacca Securities Sdn Bhd in a recent report.

Its earnings were further depressed by higher depreciation charges on the KL101 barge, following a restatement of the asset value to US dollars.

Four-fifths of its borrowings of RM213.23mil as at end March were in US dollars. Cash at that period was at RM88.29mil.

While Nik Hamdan envisages Q2’17 to be another tough quarter, he is prudently optimistic of the second-half outlook.

This is based on the current trend of order flows, where more activities will be carried out in the second half of this year.

“Generally, local activities are gradually coming back. It takes a bit of time, but we are seeing projects progressively being rolled out by the oil companies.

“This includes our underwater inspection, maintenance and repair, Pengerang EPCC projects and hook-up and commissioning work.”

 

 

 

 

 

 

 

 

 

 

 

 

Tags / Keywords: Barakah Offshore Petroleum , Samling group , oil and gas

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