By AYISY YUSOF
Maybank Investment Bank Bhd’s research division (Maybank IB Research) has reduced its valuation for Barakah Offshore Petroleum Bhd due to the company’s challenging operating environment and possible impairment for one of its projects.
The research house has downgraded the Barakah stocks to a ‘Sell’ call with a target price of 13 sen from a share price of 63 sen as at May 30.
“The operating environment will be tough in 2017, owing to low replenishment visibility and the absence of Pan Malaysia transportation and installation (T&I) works, promoting a substantial cut in our financial year 2017 (FY17) to FY19 earnings forecast,” the investment bank said.
The research division also did not rule out the possibility that Barakah may have to make impairment provisions for its KL101 pipe lay barge at the end of the year.
Barakah’s revenue dropped 25.7% to RM76.8 million for the first-quarter ended March 31, 2017 (1Q17), compared to RM103.3 million recorded in the same period a year ago due to lower revenue generated by the installation and construction services (ICS).
Maybank IB Research said the disappointment came largely from the absence of works from the Pan Malaysia T&I project as a new contract was awarded to four other companies this year, namely TL Offshore Sdn Bhd, Alam Maritim Resources Bhd, McDermott International Inc and Brookes Dockyard and Engineering Works Corp.
“We now expect Barakah to be in the red for financial year ending Dec 31, 2017 (FY17), at RM31 million versus a profit of RM28 million earlier.”
“We have also lowered FY18/FY19 earnings forecast by 93%/33% respectively. We now expect no contribution from the Pan Malaysia T&I job in 2017, leading to zero utilisation of its KL101 barge,” Maybank IB Research said.
In an exchange filing, the company announced it posted a net loss of RM4.6 million for the quarter, compared to a net profit of RM1.3 million in the same period a year ago attributable to lower revenue contribution in ICS of 44.3% to RM45.8 million.
Barakah said the lower contribution was mainly due to the completion of its T&I works, which were brought forward from the previous year. No new work orders had been received for the segment.
Moving forward, Barakah said FY17 will continue to be a very challenging period due to low utilisation of its assets.
“Despite having the umbrella and long-term contracts, the flow of work orders is still low and subject to client’s final decision,” it said.
The company remains resilient and will continue to implement various cost cutting measures to improve its operational efficiency, while exploring various opportunities to expand its revenue base.
At the close of trading yesterday, Barakah’s share price was 60 sen with a market capitalisation of RM491.2 million.