HANDAL (7253) - HANDAL - Hot and Furious

HANDAL (7253) - HANDAL - Hot and Furious

8 August 2014

While 2014 enter into the second half of the year, one of the core spotlight industry that should not be missed will be the heavy capital intensive oil and gas industry. The oil and gas industry had been one of the core focus in Malaysia. Oil, gas and energy industry plays a prominent role in the Malaysia economy, contributing to one-fifth of the national GDP over the past decade. The government had included Oil, Gas and Energy as one of the ETP (Economy Transformation Program) that will be generating a GNI of RM131.4 billion and creating 52,300 news job by 2020.

To recap back, Petronas had committed a RM300 billion capex from 2011 to 2015 for both upstream and downstream projects. As of January 2014, Petronas had spent about RM 100 billion of its RM 300 billion budget, leaving a huge chunk of the RM200 billion to be announced in the later part of 2014 and 2015. The huge capex by Petronas had enticed savvy investor such as Tan Sri Quek Leng Chan, Paul Poh, and Tan Sri Chua Ma Yu into the oil and gas industry.

While most of the prominent oil and gas company had been quite well known as of now, it had came to my attention on this little known, however, a huge potential company - Handal Resources Berhad.

With just RM 78m market capital, Handal is considered as one of the cheapest oil and gas player in Malaysia which had a bright prospect in the coming days.

Let's have a quick glance on the share price of Handal.

Handal had been trading at the price range of RM 0.45 to RM 0.50 for quite a period of time. The 9 months consolidation of the share price had started to see some saturation at the price range of RM 0.47, which will spark a set of fresh volume in the coming days to lift the share price above RM 0.50 in the coming days. A technical resistant will see RM 0.55 as the first hurdler, while breaking above will see Handal able to test psychological barrier of RM 0.60 and RM 0.70 in the coming days.


Handal - Drilling with Handrill

Handal Resources Berhad operates in several segments:
- integrated crane service
- fabrication of crane
- workover projects lifting solutions
- supply, fabrication and servicing industrial equipments and tank systems
- supply of telecommunication and broadcasting system and consultants in engineering project support services.

Previously, Handal is more known towards providing crane services in the oil and gas industry, however, it had not been the same after group managing director Mallek Rizal Mohsin had taken necessary steps to put handle from a integrated crane services provider to a marginal oil field player.

While providing crane services had a smaller profit margin, Handal will be looking to see it's coming quarterly performing in a better note after the latest RM16 million project awarded by UMW Petrodril (Malaysia) Sdn Bhd, that is going to contribute positively starting Q2 2014. Handal's current book order will be sitting at RM 260m, of which most are recurring income.

 The sustained high oil prices could fuel exploration and production (E&P) activities as E&P firms are more incentivised to push into deep-water areas.

According to Quest Offshore, from 2009 to 2013, 1,002 hydrocarbon discoveries were made. This represents a 52 per cent increase from what was discovered from 2004 to 2008 (659 discoveries).
As such, the overall higher pace of hydrocarbon discoveries may potentially drive the demand for drillers, offshore support vessels, oilfield services, equipment and parts supplies, fabrication works and maintenance activities.


Upcoming Huge Catalyst
Handal had acquire more than 97% in Handrill Sdn Bhd, a licensed rig operator by Petronas. The acquirement of Handrill is a definite game changer for Handal. At July 2013, Handal had entered into a collaboration agreement (CA) with Australian Listed MEO Australia Ltd in a bid to develop it's expertise in the area of marginal oil field development. The CA is for Handal to leverage of MEO expertise in exploration, appraisal, development and production aspect in order to secure a RSC (Risk Service Contract) from Petronas. More information here.

According to insider sources, the joint venture of Handal and MEO Australia had went smoothly and Handal will be an upcoming winner in the coming RSC announcement by Petronas. This can be further supported by the sudden strong share spike in MEO Australia Ltd on 8th August 2014, which saw the share price booming up 110% with huge active volume in the Australian Exchange.

Handal will be looking to land big in a RSC worth around RM 100m to RM 150m in the coming days. And with their current market capital of RM 78m, Handal is definitely looking for a re-rating in the industry.


Handal will definitely be a good company to be invested in, looking at it's smaller market capitalization at the moment with a huge potential in landing big contracts. Handal will be looking great in the coming days based on
- Cheapest Oil & Gas player in KLSE.
- Strong and favorable management link with Petronas.
- Focus into marginal oil field development that comes with a higher profit margin.
- Huge chance in landing a RM100m to RM 150m worth of RSC with MEO Australia Ltd
- Bullish Oil and Gas industry fueled by the remainder of RM200b Petronas capex.


At the current contract and a future landing of the risk service contract from Petronas, Handal can be easily looking to see it's market capitalization hitting RM200m, translated to RM 1.25 per share (based on 160m outstanding shares) in the coming days. A short term outlook will see Handal challenging RM 0.70, while a longer term outlook will be looking at RM 0.90 to RM 1.00

Riding the wave? You decide.
Bone's short term TP: RM 0.80

Cheers and have a nice day

Regards,
Bone

http://bonescythe.blogspot.com