Carimin Petroleum IPO on track

Oil and gas (O&G) services provider Carimin Petroleum Bhd is sticking to its plan to list on Bursa Malaysia next month despite weakening sentiment for the sector as crude oil prices plunged to a four-year low.

In an interview with StarBizWeek, the company’s managing director Mokhtar Hashim says the current weakening in the sector is short term in nature.

He says Carimin’s newly secured hook-up, construction and commissioning (HUCC) contract worth close to RM1bil will provide earnings visibility for the company in the next five years.

In mid-2013, Petroliam Nasional Bhd and its production sharing contract partners had awarded RM10bil worth of HUCC jobs, of which, Dayang Enterprise Holdings Bhd clinched some RM4bil and Petra Energy Bhd another RM2.5bil.

Carimin’s portion of the pie was about RM900mil.

“We have locked in our revenue for the next five years.

“Besides that, there could be additional work and that will increase the actual value of our contracts,” he says.

He adds that there are still many opportunities in maintenance jobs in the oil and gas sector. Carimin is also eyeing jobs in the engineering, procurement, construction, installation and commissioning (EPCIC) segment going forward.

Although Carimin has not officially priced its IPO yet, industry sources say that the company is looking at a valuation of around a price earnings (PE) multiple of 13 times historical earnings.

Carimin’s closest peer on the stock market is Dayang Enterprise Holdings Bhd, which trades at a trailing PE multiple of 16.31 times while its forward PE stands at 11.63 times. Dayang was one of the oil and gas stocks to have suffered in the recent market rout, having seen some RM540mil wiped out of its market capitalisation in the last one month.

Dayang, a much larger player, reported a net profit of RM122.08mil on revenue of RM563.36mil for its financial year ended Dec 31, 2013 compared.

Carimin, on the other hand, reported a turnover for the financial year ended June 30, 2011 (FY11), FY12 and FY13 of RM158mil, RM368mil and RM325mil, respectively.

Its net profits came in at RM9.5mil for FY11, RM16.5mil for FY12 and RM19.5mil for FY13.

“We are confident to maintain our margins between 6% and 8% as we will continue to be prudent in managing our expenditures,” Mokhtar Hashim says.

Analysts say that these margins are the norm for the industry considering that there is high competition in this business.

Due to field improvement and rejuvenation projects by oil and gas exploration companies, he believes Carimin will be able to replenish its orderbook, which stands at about RM900mil.

Of the total, RM800 mil comes from HUCC, and RM100mil from manpower supply.

With that, he is not overly concerned about the valuation of Carimin shares.

“It will not affect us much, hence we believe valuations can maintain.”

The drop in oil prices in the recent weeks has caused a major sell down in O&G counters.

Although the slump in oil prices will hit upstream players’ earnings directly, the fear is that O&G services providers will be affected as well due to a potential slowdown in O&G production activities.

Commenting on why it is opting to list now, Mokhtar says that the company needed time to build itself up and with the Pan Malaysia HUCC contract, timing is right.

The company that was established 25 years ago targets to launch its prospectus next week.

On its competitive edge, he says its strength lies in its people.

“We have been in the industry for a long time and have built our network over the years,” he says, adding that the management team knows the market well and has built a track record over time.

The long-term contract would also allow it to plan better and thus save costs.

According to him, its gearing is at a “very healthy level”.

On its growth plans, Mokhtar says he prefers to be focused on its core strength and will concentrate on the existing services it provides in the domestic market.

“There are many opportunities in Malaysia so we want to grow here.

“However, as a businessman, we will definitely look into it when opportunities arise,” he quips.

The same goes for its expertise as it will continue to expand on providing services that relate to its current core businesses.

“We are a HUCC and topside major maintenance specialist. We want to do well in this segment.

“If you run too fast, you might fall down,” he stresses.

In order grow its capacity, it has allocated RM12mil for the development of its yard in Kemaman, Terengganu for FY15.

The facilities enhancement work for the 78,000 sq ft yard was estimated to take 10 to 12 months.

Besides the yard, it also owns an anchor handling towing supply vessel Carimin Airis, which was acquired last year and co-owns a DP-II workboat SK Deep Sea with another party.

“We have spent RM50mil to RM60mil for capital expenditure for the past three years,” he adds.

He explains that the company runs on a lean model and will charter for vessels when its workload increases. That said, it will continue to buy assets to improve its eligibility to bid for bigger jobs.

In its draft prospectus, it intends to use 52.9% from the funds it aims to raise from its initial public offer to buy an offshore supply vessel. The OSV or accommodation workboat is estimated at RM95mil and the monies will be used for the deposit while the remaining will be funded via bank borrowings.

On top of that, 20.6% of the fund raised will be used to develop a minor fabrication yard, 12.4% to repay bank borrowings, 7.9% for working capital and 6.2% for listing expenses.

It also says it is selling 28.47% of its enlarged share base of 233.88 million shares that consists of 60.7 million new shares and 5.89 million existing shares under an offer for sale to selected investors.

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