FOLLOWING its turnaround in the financial year ended Dec 31, 2016 (FY2016), T7 Global Bhd expects to post a second straight year of profits in the year just ended and carry this momentum into FY2018 with new contract wins and stabilising oil prices.
Executive deputy chairman Tan Sri Tan Kean Soon is optimistic that FY2018 will be a year of continued growth, with better earnings and revenue as oil prices are showing signs of stabilising after two volatile years.
“Based on the consensus forecast and the current situation, oil prices are expected to stay in the range of US$60 to US$70 per barrel in 2018, which is good news for all oil and gas (O&G) companies, especially service contractors like us. We see more tenders coming up compared with last year, which was a quiet year,” he tells The Edge in an interview.
In-page MRec
He notes that the number of projects released by Petroliam Nasional Bhd (Petronas) has also improved.
Still, Tan is cognisant of the fact that T7 Global faces intense competition from some 4,000 other O&G companies that are registered with Petronas. However, he believes the group has on its side more than 30 years’ experience in the business. “We have to keep improving, not taking for granted that we have recovered,” says independent non-executive director Abd Rashid Md Sidek. “Internally, we have taken cost-cutting measures to prepare T7 Global for better times ahead.”
In terms of investment in new oilfields, Tan is of the view that it is set to remain slow this year as Petronas is not expected to spend significant sums on developing new fields but on enhancing its existing facilities.
Nevertheless, T7 Global will team up with a Japanese company to participate in brownfield developments, particularly enhanced-oil recovery projects. “We don’t see Petronas activating any brownfield projects soon. Maybe if the oil price improves to more than US$70 per barrel, these projects will kick in. Anyway, together with our foreign technology partner, we are ready to explore this activity,” says Tan.
He believes that the worst is over for T7 Global as the group finally seems to have got past the damaging scandal of 2014-2015, when it was known as Tanjung Offshore Bhd. To recap, the group fell into the red in FY2011 due mainly to operational losses, impairment of receivables of its engineering equipment division and losses due to the cessation of its UK subsidiary, Citech Energy Recovery Systems UK Ltd. Then, in 2014, it was hit with the scandal that led to board and management changes and its former group adviser and managing director being indicted for fraud and money laundering.
“Let’s forget the issues of the past. Today, we have a new management team and a board comprising mostly O&G experts who are more business-oriented,” says Tan.
Today, T7 Global has a contract backlog of RM800 million from the O&G sector, which will keep it busy until 2022. Its tender book stands at RM3 billion.
On Jan 2, it announced six contract wins amounting to RM260 million, with the longest contract stretching four years with an option to extend for another four years.
“These contracts will start contributing to the group’s revenue from this quarter. We expect Petronas to announce more contracts this year and we hope to secure one or two more contracts from them. We are also bidding for jobs from other production-sharing contractors,” says Tan.
He also expects the group to secure contracts from its investment in Australia-listed O&G exploration and production firm Triangle Energy Global Ltd, which operates the Xanadu oilfield in the Perth Basin, in the first quarter of this year. In June last year, T7 Global acquired a 9.8% stake in Triangle Energy for US$500,000 (RM2.14 million), with the intention to give it a foothold in the Asia-Pacific O&G market.
T7 Global posted a strong recovery in earnings in the first nine months of 2017 (9MFY2017), posting a net profit of RM1.72 million compared with a net loss of RM4.73 million a year ago. Revenue more than doubled to RM101.76 million from RM46 million over the same period. It had no borrowings and had net cash in hand of RM35 million as at Sept 30, 2017.
T7 Global has set aside between RM30 million and RM35 million for capital spending this year, mostly for the construction of a RM30 million metal treatment plant for the aerospace sector in Serendah, Selangor, under a 60:40 joint venture with KOV Ltd, a wholly-owned unit of UK-based Kilgour Metal Treatments Ltd.
According to Tan, construction of the plant will be completed by the end of the year, with production due to start in the first quarter next year.
The aerospace segment is expected to contribute about RM180 million per year — equivalent to 20% to 30% of the group’s revenue — when the plant is running at full capacity.
Tan explains that the metal treatment plant only constitutes Phase 1 of the entire plant for the aerospace sector. “We are looking at other kinds of growth opportunities such as precision machining for Phases 2 and 3, but this will be in two to three years’ time,” he says.
While O&G remains the group’s core business, accounting for some 70% of revenue, Tan does not discount contributions from two segments — aerospace and infrastructure management services — surpassing that of the O&G sector in the future.
“The aviation industry in Asia-Pacific is growing very fast. Our metal treatment plant in Malaysia will serve as Kilgour’s Asia-Pacific hub. Its clients include Boeing and Airbus.
“(Apart from serving Kilgour’s needs,) we are also talking to second-tier component makers like Composites Technology Research Malaysia Sdn Bhd, Indonesian Aerospace and Thailand’s Triumph Aviation Services Asia to use our treatment for metals used in aircraft construction, which can save them 30% to 40% of energy cost and about 20% of logistics cost compared with doing it overseas,” says Tan.
According to Airbus’ latest Global Market Forecast, airlines from Asia-Pacific will take delivery of some 10,940 new passenger and cargo aircraft between 2013 and 2032, valued at US$1.8 trillion. This represents 37% of all new aircraft deliveries worldwide over the next 20 years, ahead of Europe, North America and the Middle East.
Meanwhile, T7 Global expects the infrastructure management services business to start contributing to the group’s revenue in the second half of this year as the government is set to award work packages under the East Coast Rail Line (ECRL) project. “We are confident of securing a contract, looking at our strong consortium partners. We are eyeing the Kelantan and Terengganu portions of the project,” says Tan.
Last October, T7 Global signed a memorandum of understanding with Terengganu state-linked Eastern Pacific Industrial Corp Bhd, CMC Engineering Sdn Bhd and China State Construction Engineering (M) Sdn Bhd to form a strategic partnership for the collaboration. Tan says the companies will reveal the shareholding structure of the consortium soon.
Apart from ECRL, the group is also looking at infrastructure works like the Kuala Lumpur-Singapore high-speed rail and airport expansions. “We will bid for the projects with our partners because this (infrastructure management services) is something new to us,” Tan adds.
T7 Global has also scrapped plans to refurbish its eight-storey office building in Birmingham, the UK, as it has found buyers. “Property is not our core business and proceeds from the sale (amounting to £5.75 million) will come in handy for our future capital expenditure,” says Tan.
T7 Global had signed an agreement with UK-based Cross Space Securities in March 2014 to buy its wholly-owned subsidiary Wavenet Investment for £6.7 million. Wavenet owns a 100% stake in Sparkling Light Investments, which owns the office building in Birmingham.
T7 Global’s share price has gained 28% over the past year. It closed at 46 sen last Thursday, giving the group a market capitalisation of RM190.85 million.
http://klse.i3investor.com/blogs/askyouquestion/145287.jsp
