Technics Oil & Gas Limited

Kim Eng on 15 June 2012

Background: Technics Oil & Gas is a full-service integrator of compression systems and process modules for the global offshore oil and gas sector. It designs and fabricates modules that are integrated to form the operating systems in offshore production. The company operates a yard each in Singapore and Batam. It was set up in 1990, listed in April 2003 and upgraded to the main board in January 2008.

Recent developments: Technics recently announced a proposed acquisition of Vietnam Offshore Fabrication & Engineering Co Ltd (VOFE), which owns the biggest offshore fabrication and engineering complex in South Vietnam. The purchase consideration is not expected to exceed SGD10m.

Enhancing its presence in Vietnam. Technics is no newcomer to Vietnam’s oil and gas sector, having been involved since 1990. The proposed acquisition would give the company an edge when it vies for major projects that require local content and at the same time, improve its efficiency in project execution around the region. We believe that the acquisition of the yard would aid in driving the next stage of growth for Technics.

Oil price volatility less of a worry. Management emphasised that its business is less affected by short-term oil price volatility because its process modules and equipment are used mainly for oil production and storage applications. Oil majors also have a longer-term perspective when committing to capital-spending plans and would not be majorly affected by short-term fluctuations in oil prices.

Spin-off in progress. Technics is preparing to spin off two of its contract engineering subsidiaries for a separate listing on the Gretai Securities Market of Taiwan in June 2013 in hopes of better valuations.

FY9/12 likely a record year. In view of its strong performance in the first half of the year, FY9/12 could well turn out to be a record year for Technics. Lending support would be its net orderbook of SGD95.5m. Furthermore, consensus is expecting a dividend per share of 8 cents, which would translate to an attractive yield of 8.9%. Valuations are also relatively undemanding at consensus 8.5x FY12 PER.