Petra Perdana plans to acquire rivals

Tag : marine water boiler

Oil and gas services firm Petra Perdana Bhd plans to acquire rivaloperators to fast-track the growth of its brownfield projects,capitalising on its competitors' existing overseas business links.
Brownfield jobs involve the maintenance and upgrading of existingoil and gas production facilities.
Petra Perdana executive chairman and CEO Tengku Datuk Ibrahim Petrasays the company is studying the profiles of four engineering-basedentities, one of which is based abroad. "We are looking at theacquisition of companies to fasten our growth," Ibrahim tells TheEdge in an interview. While he does not specify a time frame inwhich the acquisitions will take place, Ibrahim does indicate thatPetra Perdana will resort to borrowings to finance its purchases.
Petra Perdana's current brownfield operations, the bulk of whichare in Malaysia, are undertaken by Petra Energy Bhd, of which itowns 60%. A firmer grip on the global oil and gas brownfield marketis deemed pivotal to safeguard earnings amid fluctuating crude oilprices. For example, when crude oil prices drop, oil companies maytighten their purse strings by seeking out service providers torepair and maintain existing facilities instead of purchasing newones. However, soaring oil rates will, in turn, prompt demand forfacility-upgrading jobs by oil majors to boost crude oilproduction.
"We are in a safe position," says Ibrahim, who has helmed PetraPerdana since 1988, when the firm was founded and run by athree-member team. Initially trading in oil and gas productionequipment, such as chemical injection pumps, the company has grownits workforce to some 1,500 employees. The company's big break inthe brownfield segment came in 1990 when it was awarded afacilities maintenance contract in Sarawak by Shell.
Petra Perdana stands to gain from escalating vessel-charter ratesdue to a shortage of the marine-transport vehicles for oil and gasoperations. The scarcity comes amid more exploration activities byoil and gas firms to capitalise on higher prices of the commodity.
According to Ibrahim, Petra Perdana, which also sells boilers topalm oil mills, is expected to have 38 vessels by 2010, up from the21 marine units at present. He says Petra Perdana's capitalexpenditure for 2008 and 2009 will be in the "hundreds of million"ringgit. According to analysts, as part of its aggressive expansionplan, Petra Perdana is looking to spend about US$500 million on 17new vessels. However the acquisitions are off the balance sheet, orvia the sale-and-lease-back method, with an option to buy the shipsafter a number of years.
Going forward, Petra Perdana's boiler manufacturing operations areno less exciting. Although still insignificant compared with itsbread and butter oil and gas unit, the boiler business is expectedto make further strides in due course.
"The outlook for the palm oil business is very good. It's not huge,but it's growing" he says.
In May, Petra Fabricators Sdn Bhd, a wholly-owned unit of PetraEnergy, secured a RM50 million contract to supply eight water-tubeboilers to Felda Palm Industries Sdn Bhd in Malaysia. Across theglobe, boilers manufactured by the Petra group have reached as faras Central America, in addition to Thailand and Indonesia.
Analysts expect Petra Perdana to reap the fruits from its ongoingvessel renewal and expansion activities. "FY2009 will be better,due to the full earnings impact from the delivery of new vessels in2008.
"This should be the time for Petra Perdana to reap the fruits ofits aggressive expansion plan launched in 2007, coupled with anoffshore leasing programme. This could help ease their financialburden," says MIMB Investment Bank, which rates the stock a "buy"with a target price of RM5.85.
Petra Perdana's shares declined six sen, or 1.5%, to RM4 on June19, which brought the firm's value to RM1.19 billion. The stock hasdipped 25.9% so far this year, versus the Kuala Lumpur CompositeIndex's 17.2% decline.
Petra Perdana's shares hit its six-month high of RM5.40 on Dec 312007, and a low of RM3.34 on March 18, 2008. Of the 13 analystscovering the stock, nine recommended a "buy", three have an"outperform", while one analyst rated the stock an "overweight",according to Bloomberg.
Petra Perdana's earnings dropped in 1Q2008. Net profit was morethan halved to RM16.08 million from RM32.52 million a year earlierfollowing the disposal of three vessels in 4Q2007, resulting inreduced income from marine support services. Revenue grew 10.5% toRM148.62 million from RM134.44 million.
During the quarter, its integrated brownfield engineering andmaintenance services constituted 72.7% of the revenue while themarine offshore support unit made up 47.5% of the turnover. On thewhole, while the rising prices of oil augur well for Petra Perdana,the company's fabrication business is also subject to costliersteel prices which may erode profit margins. At the same time, thecompany's involvement in the palm oil sector, although still in theearly stages, could be viewed as a timely platform to capitalise onpalm oil demand for the production of biofuel as a substitute forcrude oil.