This article first appeared in The Edge Malaysia Weekly on August 5, 2024 - August 11, 2024

OIL and gas (O&G) service provider Marine & General Bhd (KL:M&G) could bag a large — roughly RM500 million — contract for a six-year tenure from national oil company Petroliam Nasional Bhd (Petronas), sources familiar with the matter tell The Edge.

While details are scarce, it is understood that the contract could likely involve a number of Petronas’ existing exploration projects here in Malaysia, which require offshore support vessel (OSV) services.

When asked about the likelihood of it winning such a large job, the company says in an email response to The Edge: “M&G does not comment on speculation … M&G is constantly bidding for contracts and therefore it would not be appropriate to go into the details of the contracts that it is bidding for. It will however make the appropriate announcement(s) as and when there is an actual material development.”

M&G has 70% equity interest in Jasa Merin (Malaysia) Sdn Bhd, a company that operates a fleet of 22 vessels — 20 anchor handling tug supply (AHTS) vessels and two straight supply vessels, which are generally utilised for transporting essential equipment, supplies, materials and manpower to oil exploration platforms.

Another source points out that the demand for M&G’s vessels could stem from Petronas recording 19 exploration discoveries last year, which in turn could translate into a strong pipeline of contracts for the local O&G service providers in the coming years.

“What happened is that during the lull in oil prices … this is about 2020, when oil prices (Brent Crude) fell to about US$22 a barrel, many OSV players held back on capex (capital expenditure). This [lack of expenditure], coupled with financial institutions being wary of funding O&G companies after a number of mishaps, resulted in a shortage of vessels.

“Now, many service providers are seeing higher utilisation rates, especially as marine offshore activities are expected to remain high in the coming years,” the source explains.

For M&G, as at April 30 this year, its fleet utilisation rate was between 75% and 77%.

Previously known as SILK Holdings Bhd, M&G changed its business direction after the disposal of its highway concession asset back in 2017.

At the present time , the group is an offshore service provider for the O&G sector via Jasa Merin. The other 30% stake in Jasa Merin is held by the Terengganu government.

According to Kenanga Research, M&G is the largest owner of “high-capacity” AHTS vessels in the country, with an average fleet age of 13 years.

“M&G is poised to capitalise on the rising upstream drilling activities in Malaysia as Petronas and other oil majors ramp up their undertakings. We believe the AHTS rates are set to hit new highs in FY2026 on strong demand,” it says in a July 13 report.

The research house points out that M&G also owns six small-sized product tankers that generate recurring income for the group.

Earnings-wise, Kenanga expects M&G to post a significant jump in net profit of more than “sevenfold” year on year (y-o-y) to RM55.9 million in FY2025, driven by a projected 20% increase in average daily charter rates (DCR) to RM55,900, on the back of a fleet utilisation rate of 88%.

“In FY2026, we anticipate a further y-o-y earnings growth of 85%, underpinned by a 13% increase in average DCR to RM64,200 and slightly higher vessel utilisation of 89%,” it adds.

Kenanga has a target price of 46 sen per share for M&G based on its FY2026 price-earnings ratio (PER) of 10 times, which is in line with that of its OSV peers of 10.2 times.

Kenanga adds, “We believe the discount to its peers is justified by its older vessel age and higher net gearing.”

For the financial year ended April 30, 2024 (FY2024), M&G posted a net profit of RM48.38 million, slightly higher than the RM48.09 million made a year earlier. Revenue for the period rose 13.2% to RM347.92 million from RM307.28 million previously.

Jasa Merin, accounted for the bulk of M&G’s revenue in FY2024, contributing 76% or RM265.92 million. The remaining 24% was derived from its wholly-owned Jasa Merin (Labuan) plc and M&G Tankers Sdn Bhd, which are involved in chartering out four 7,000 dead weight tonne (DWT) liquid bulk carriers, and four clean petroleum product tankers that range from 8,000 to 11,000 DWT.

Kenanga points out that M&G has gone through a rapid de-gearing exercise since 2020, restructuring RM923 million of debt with its bankers by paying RM50 million upfront, and settling RM150 million worth of debt through the issuance of irredeemable preference shares to the banks and securing additional time to settle RM723.2 million owed to financial institutions.

“Since the exercise, M&G has managed to bring down its net gearing from 22 times to 4.5 times. With cash flow expected to reach comfortable levels of RM150 million to RM200 million per annum in FY2024-2025, we expect the group to be able to pare down its net gearing even further, thus reducing the company’s gearing risk,” says the research house.

As at April 30, M&G’s borrowings stood at RM621.91 million on the back of RM66.67 million cash.

M&G closed at 35 sen last Friday for a market capitalisation of RM253.4 million. Year to date, the counter has risen 55.56%. On July 26 this year, M&G’s share price hit and intra-day high of 41 sen — its highest level in close to 10 years. 

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