DIALOG: Energy Services Firm Exceeds Expectations on Cost Efficiency, Target Price Raised

A prominent technical service provider in the oil, gas, and petrochemical sectors reported 1QFY26 core earnings that met market expectations, signaling a stable start to the financial year. The core profit after tax and minority interests (PATAMI) remained flat quarter-on-quarter at MYR138m, reflecting the firm’s resilience amidst varying market conditions.

Performance Review

Revenue for the quarter saw a strong 8% increase quarter-on-quarter, reaching MYR657m. This topline growth was primarily fueled by a robust 27% quarter-on-quarter contribution from Malaysian operations, which successfully offset a 12% decline from Singapore and New Zealand operations. However, profit before tax (PBT) experienced an 11% sequential dip, largely attributable to weaker contributions from joint ventures and associates, which fell by 34% quarter-on-quarter. Despite this, the impact on core earnings was partially mitigated by a significantly lower effective tax rate of 15% in 1QFY26, down from 33% in 4QFY25, thanks to unrecognised tax losses, demonstrating effective cost management. Year-on-year, core profit saw a 14% decline, influenced by reduced JV & associate contributions and lower realised oil prices.

Future Outlook and Strategic Expansion

Looking ahead, the firm is strategically positioned for growth. A significant development includes the recent long-term service agreement (LTSA) with BP Singapore for the Phase 3 expansion of its Pengerang Deepwater Terminals (PDT) in Johor. This expansion will add an impressive 614k cu/m3 of tank capacity for refined petroleum products, effectively more than doubling the existing capacity to approximately 1m cu/m3. The completion of this phase is anticipated by mid-2028, with full-year contribution expected in FY29F. While there is a potential delay for the Pengerang Energy Complex (PEC) project, with start-up now guided for 1QCY29 (previously 4QCY28), this could be offset by new terminal jobs secured over the next 12 months and the aforementioned Phase 3 expansion. The investment bank maintains its FY26F-28F earnings forecasts, noting that the Phase 3 expansion aligns with its estimates.

Investment Conclusion

Despite some operational headwinds from joint ventures and potential project delays, the company’s robust topline growth, strategic capacity expansion, and diligent cost management have underscored its resilient business model. Given its strong market position and clear growth trajectory, an investment bank has either initiated or upgraded its recommendation to BUY, setting a target price of RM0.25. This represents a substantial upside of 25.0% from the last traded price of RM0.20, reflecting confidence in the firm’s long-term value creation.