Scomi Marine (RM0.51; Not Rated; SMB MK)

The following are highlights from our company visit after
SMB announced the disposal of its marine logistics business
to PT Rig Tenders Indonesia (PTRT) for US$171.8m
(c.549.8m). PTRT is currently a 80.5%-owned subsidiary of
Scomi Marine Services (SMS). Upon the completion of the
disposal exercise, SMS’ stake in PTRT would be reduced to
24.6%. The following are key points of the disposal
exercise:
- PTRT will acquire SMS marine logistics business for a
total consideration of US$171.8m;
- PTRT will fund the acquisition via US$100m bank
borrowings and the remaining through a rights issue;
- SMS will renounce its entitlement to the rights issue to
Portside Offshore Inc (POI), a special purpose vehicle
backed by privately managed fund;
- POI would then emerge as the majority shareholder in
PTRT at 62.8% after the completion of the disposal
exercise.
We understand that upon the completion of the disposal,
SMB would be in a net cash position of RM484m or
RM0.66/share. SMB would also realise a loss on disposal of
c.RM432m upon taking into account SMB’s full investment
cost and acquisition profit on the marine logistics business.
Management has yet to decide on the next course of action
from the disposal proceeds. We believe it could be one of
the following 3 options: - (1) capital repayment; (2)
reinvestment with the remaining proceeds to be distributed
as special dividend; and (3) new asset acquisitions. We
believe that scenario 2 would likely be the preferred choice
as SMB would be able to reinvest for future growth, while
at the same time utilise part of the proceeds to reward
existing shareholders.
After the disposal, SMB would derive bulk of its earnings
locally while still maintain its core operations in marine logistics
and offshore support services. SMB has 2 AHTS (5,000 bhp)
vessels under its 51%-owned subsidiary, Marineco Limited,
which are on charter to Shell currently. SMB is also among the
5 operators undertaking Tenaga coal logistics requirement
under its wholly-owned subsidiary, Trans Advantage.

We understand that SMB intends to grow these two divisions
by acquiring more assets. At this juncture, details remain
sketchy although deepwater assets for offshore support
services could be on the cards. We expect annual net profit to
moderate to RM10-15m upon the completion of the exercise