Thursday, April 22, 2010

Scomi Group in da haus

Scomi Group is on the rise on volume above average again. Which suggested, potentially to test the 55 sen resistance. If that level breached, next resistance is 60 sen. Support level is 46.5 sen. On funda mantal side, ha ha do i care, yup, some people said, you also must considered its funda mantal. Well ok, ha ha, this was what Amresearch said:

We are upgrading Scomi Group Bhd (Scomi) from HOLD to BUY with higher fair value of RM0.76/share (from RM0.48/share) based on a PE multiple of 12x - in-line with
peers average.

• First, our upgrade - after our visit to the company - is premised on our revision in earnings by 4% - 27% to RM71mil - RM96mil for FY10F-FY12F. This is underpinned
by: (1) Stronger revenue growth assumption - from 1% to 6% to 10% - for its oilfield services unit; and (2) Higher margin assumption for its maiden monorail business to
10% from 6% previously.
• Second, Scomi is currently trading towards the lower end of its PE band at a multiple 8x. It is no surprise that the market is assigning such valuations given its persistent
poor earnings deliverance.
• Having said that, we believe revenue from drilling fluids and drilling waste management should pick up in tandem with the rejuvenation in global E&P spending - underpinned by rising oil prices and an improved credit market. To highlight our point, global rig counts have
shown improvements.
• Expectation for Scomi is muted given its poor track record in earnings deliverance, but it could surprise on the upside especially with the stronger macro outlook. But group needs to start performing to deserve higher valuations.
• Another re-rating catalyst would be forthcoming for Scomi, if it were successful in securing new monorail jobs. The group is currently bidding for monorail jobs worth circa
US$11bil - at an average of US$35mil-US$40mil/km - including jobs in Brazil, India, Saudi Arabia and Nigeria.
• First phase awards for monorail work in Brazil (24km) – valued at US$2bil - should be announced within the next few weeks. We remain sceptical that Scomi would able to clinch this job with heavyweights like Bombardier also shortlisted.
• But Scomi is confident of securing at least a few more monorail projects - such as in India. It has guided for equal contribution from its O&G and transport units in FY2011F. Given its presence in India, we think Scomi has a better chance of being awarded contracts for extensions jobs in Mumbai and possibly Bangalore (total 65km).
• There is also a possibility of Scomi being involved in the expansion to the KL monorail system and signalling works for the Putra and LRT systems - worth close to RM1bil.

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