Background
IEV Holdings offers integrated offshore engineering to support the offshore oil and gas (O&G) industry. The company provides engineering services to companies in the offshore O&G sector, namely, offshore platform operators and EPCIC contractors. IEV is also in the business of off-pipeline natural gas distribution in Indonesia and Vietnam.
What’s New
• Commenced second turnkey decommissioning project. IEV Holdings (IEV) has commenced a second turnkey decommissioning project for an established oil and gas operator in Malaysia, following its first turnkey project awarded by Petronas Carigali earlier this year.
• RM12m project to be completed by 1H12.
The contract is valued at RM12m and involves turnkey project management including engineering, preparation, removal and disposal of a vent platform and associated pipelines. The project is expected to be completed by 1H12, and is not expected to have a material impact on the group’s net tangible assets and earnings per share for 2011.
Stock Impact
• Orderbook stands at RM280m. Including contribution from this turnkey project, IEV’s current orderbook amounts to RM280m, an eight-fold increase compared to its orderbook in Apr 11. We expect these orders to be delivered over the next 6-12 months.
• Expect 10% net margin for project. We expect this turnkey decommissioning project to generate a net margin of 10.0% and account for 3.5% of our revised 2012 profit forecast.
• Riding on bright prospects for offshore decommissioning. In the coming years, we expect hundreds of fixed platforms in Asia will be due for decommissioning, or disposal, as they approach their 25- year design life. According to the Oil & Gas Journal, over 560 existing offshore installations in Asia Pacific are currently already over 25 years old. In our view, IEV is well poised to benefit from an imminent wave of decommissioning projects given its strong track record and experience in the field having completed over 15 projects as a subcontractor.
• Petronas to boost capital expenditure. We believe that IEV is set to benefit from Petronas’s planned increase in capex as it is a major contractor for the Malaysian national oil company. Petronas is expected to increase annual capex to RM50b-55b over the next five years, up from RM40b in the current fiscal year as the state oil giant seeks to boost oil production and kick-start marginal oil field developments.
Earnings Revision
• We increase our 2012 net profit forecast by 4.0% to account for higher-than-expected contract wins. We also increase our 2012 revenue forecast to reflect IEV’s increased orderbook.
Valuation
• Reiterate BUY with a target price of S$0.63 (previously S$0.59), representing 28.6% upside from current price. Our target price is based on a sum-of-the-parts (SOTP) methodology consisting of a) the offshore engineering and natural gas distribution businesses, valued at 9.0x and 8.5x 2012F earnings respectively, at a 30% discount to peers and b) the market value of IEV’s 20.5% owned listed associate CNG Vietnam (CNG VN).
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