April 24, 2012

Seremban Engineering was Awarded Its First Oil & Gas Job

Seremban Engineering Bhd (Seremban Engineering) is ‘set to shine’ in 2012 with its robust order book worth RM77 million as well as the recent award for its first ever oil and gas (O&G) fabrication job from Kencana Petroleum Bhd (Kencana).

“To add to that, Seremban Engineering’s current tender book is at RM48 million with an estimated success rate of at least 15 to 20 per cent, with 16 per cent in gross margin,” Kenanga Investment Bank Bhd (Kenanga Research) noted in its research report.

It also commented that the O&G fabrication job from Kencana would prove to be a big breakthrough for the company in the lucrative sector. As such, the research house expected financial year 2012 net profit to grow 40.4 per cent year-on-year to RM5.6 million from RM4 million financial year 2011.

Seremban Engineering operates its process equipment fabrication businesses based on a cost-plus model. The contracts are in cost-reimbursement terms where the cost of materials and the amount of overhead incurred on jobs are borne by customers,” explained the report.

Hence the risk of cost overrun was minimal. Kenanga Research thus believed that the company was able to sustain its gross profit margin level at a favourable term.

For financial year 2012, the research house projected Seremban Engineering’s cost margin at 16 per cent, which was slightly lower compared to management’s guidance of 18 per cent. It also expected the gross margin to improve gradually and be well maintained at around 18 per cent by financial year 2014.

“We are projecting financial year 2012 to 2014 expected net profit of RM5.6 million to RM10.3 million, representing a three-year net profit compound annual growth rate of 31 per cent,” Kenanga Research stated, adding that the company should benefit from a lower statutory tax allowance at 23 per cent.

The company’s fabrication yards comprising seven factories, to be fully operationally occupied from 2013 onwards. Together with the new income stream from the O&G industry, the research house forecasted financial year 2013 to 2013 estimated net profit of RM8.44 million and RM10.3 million respectively on the back of revenue of RM109.9 million and RM120 million respectively.

Source: The Borneo Post (24/04/12)

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