PETALING JAYA: Techfast Holdings Bhd is banking on its new venture in the lucrative petroleum trading and oil bunkering business to secure more contracts and expand into international ports as global trade gains momentum.
Executive director Vincent Tan Wye Chuan told StarBiz that this is a timely opportunity for the company to enter the oil bunkering sector on the back of renewed optimism due to worldwide rollouts of Covid-19 vaccination programmes.
Oil bunkering involves the supply of marine fuel oil used by ships from one vessel to another.
He said demand for marine fuel oils is anticipated to grow as global trade and shipping activities gain momentum following the re-opening of economies.
“In Malaysia, major ports such as Port Klang experienced bottlenecks earlier this year with high volume of vessels arriving at the ports, which bodes well for the group’s prospects.
“Oil prices have also returned to pre-pandemic levels of US$60 (RM246.57) to US$70 per barrel range as activities in the oil and gas industry ramp up.
“As bunker services play a critical role in supporting oil and gas operations, Techfast is set to benefit from increased oil and gas activities, ” Tan noted.
Since the beginning of the year, Techfast has been actively laying down the foundation for the continued growth of its new business to supply marine fuel oils.
To support the expansion of its petroleum trading segment, the group has undertaken several fund-raising exercises.
So far, he said, Techfast has successfully secured several contracts to deliver a range of marine fuel oils to prominent customers in various industries.
In March 2021, Techfast was awarded a three-year contract valued at about RM2.2bil to supply 10,000 to 30,000 tonnes of marine fuel oils per month to Singapore-based integrated marine fuel logistics provider, Wise Marine Pte Ltd.
“This represents a major addition to the group’s portfolio. It has commenced the first delivery to Wise Marine this month, amounting to 10,000 tonnes of marine fuel oil worth about RM20mil.
“With the additional funds raised, we aim to fulfill the supply of 30,000 tonnes ahead of schedule. This will, in turn, lead to higher earnings contribution for the group.”
Tan said the potential capital injection of up to a combined RM115.3mil from the proposed rights issue with free warrants and proceeds from proposed disposal of a subsidiary would provide Techfast the financial flexibility to procure more supply contracts and take on larger projects, hence enhancing its revenue streams.
“We are also planning to acquire our own bunker vessels to further enhance our profit margins. As part of our growth strategies, we are eyeing expansion into international ports such as in Singapore and Hong Kong.
“On top of that, we endeavour to expand into the liquefied natural gas (LNG) bunkering space, after establishing a market for traditional oil-based fuels. There is great potential to be reaped as new vessels opt for dual-fuelled engines that can be powered by LNG to mitigate carbon footprint, ” Tan said.
The maritime transport industry is evolving with an energy shift towards low-carbon alternative energy sources due to the International Maritime Organisation (IMO) 2030 -2050 regulations.
The IMO is planning to impose stricter carbon emission rules with the target to reduce greenhouse gases emission from international shipping by at least 40% by 2030 and 70% by 2050.
Tan said he is confident that the group is well-positioned to capture emerging opportunities in the petroleum trading and oil bunkering market.
“We aim to develop our competencies and expand our bunker contracts in hand, which currently amounts to close to RM2.2bil, to establish the group as a leading bunker supplier in Malaysia and Singapore, ” he said.
In March this year, Techfast completed a private placement exercise, raising total proceeds of RM28.2mil, for the working capital needs of the group’s oil bunkering business as well as the acquisition of a 35% stake in CCK Petroleum Sdn Bhd, a fuel supplier with activities at major transiting ports in Malaysia and a wide clientele in the maritime industry.
With the acquisition, Tan said the group is able to strengthen its presence in the local bunkering industry.
There is also a profit guarantee of RM5mil per year from CCK Petroleum for a period of two years for financial year 2021 (FY21) and FY22. With the 35% stake, this translates to a net profit contribution of RM1.75mil per year to Techfast.
At the same time, the group is undertaking a proposed rights issue with free warrants, with potential proceeds of up to RM109.2mil, to finance its new venture of petroleum trading and oil bunkering business.
The group is also in the midst of disposing of its subsidiary, Techfast Precision Sdn Bhd, for RM6.1mil cash. Techfast Precision is involved in the manufacturing and distribution of specialised fasteners and related precision turning and machining parts.
Tan said the technological advancement in the assembly process of electronic products such as computers and televisions has rendered the main products of Techfast Precision obsolete with lower demand.
“Due to the declining prospects of this business, the group has decided that it is more favourable to dispose of Techfast Precision in order to pursue other profitable activities such as our foray into the bunkering space.”