Tanjung Offshore Suffers Huge Losses 'As Expected'

Oh yeah, good old OSK.

The other day I was reading their report on Tanjung Offshore. It interested me for a couple of reasons. Firstly OSK warns of lower earnings, ie losses from Tanjung Offshore! Secondly it lowered its target for Tanjung. Now lowering price target is understandable but when the Target Price is reduced from 1.94 to 0.88 sen, one just have to wonder what's happening!

This was their explanation.

• We expect Tanjung Offshore to announce its 3QFY09 results on 24 Nov 2009, which we gather would be in the red. This may be mainly attributed to its UK subsidiary, Citech, experiencing some cost overruns and late delivery issues. Hence, we are lowering our FY09-10 earnings, as well as downgrading our call to Sell, with a target price of RM0.88 (previously Buy, TP: RM1.94)
  
  3QFY09 results likely to be bad. Tanjung Offshore is expected to announce its 3QFY09 results on 24 Nov, 2009, which we understand would be in the red compared to a net profit of RM2.8m in 2QFY09 and RM10.0m in 1QFY09. We gather that the main reason for the weak results emanate from its UK subsidiary, Citech Energy Recovery Systems UK Ltd, which manufactures CITECH waste heat recovery units. Apparently, this unit again experienced cost overruns and late delivery like it did during 2QFY09, when its net profit plunged 72.5% q-o-q. We also see this loss spilling over to 4QFY09, which may erode its cumulative 1H09 profits.
  
  

Yeah, previously 1.94!

But OSK wasn't the only that had a SELL on the stock.

On 26th Aug 2009 AmResearch downgrades Tanjung Offshore to Sell (AmResearch gave it a fair value of 1.11) and Maybank Investment Research too had a SELL on the stock with a target price of 0.90.

Now OSK too had a report on 26th Aug. This is what they wrote!

Their price target was 1.74! LOL! (Remember AmResearch had it at 1.11 and Maybank had it at 0.90)

I guess their downgrade on 20th November was better late than never!

Tanjung Offshore announced its earnings last night. It made huge losses!

I then looked at its Balance Sheet.




Compared to previous year, cash balance down. Receivables are rather high at 196 million. But the look at the spiralling debts! Look at all the bonds and the Islamic notes. Total debts now stands at 578.194 million! (Are you sure debts is good?)

How?

LOL! Some would say no worries. The losses are 'as expected' and that the recent decline in Tanjung Offshore share prices HAD already reflected these losses.

So how?

On the Edge Financial Daily. Tanjong Offshore posts RM10m net loss in 3Q

• Tanjong Offshore posts RM10m net loss in 3Q
  Written by Siti Sakinah Abdul Latif
  Tuesday, 24 November 2009 23:48
  
  KUALA LUMPUR: Tanjong Offshore Bhd posted a net loss of RM10.28 million in its third quarter (3Q) ended Sept 30, compared with a net profit of RM5.08 million a year earlier, due mainly to the loss at its UK unit Citech Energy Recovery Systems UK Ltd (CERS).
  
  The company said CERS registered a net loss of £2.70 million (RM15.1 million) in the quarter and had ongoing late delivery charges payments and escalation of costs in its manufacture of waste heat recovery packages.
  
  Revenue for the quarter fell 21.3% to RM154.88 million from RM196.91 million. Loss per share stood at 4.18 sen, compared with earnings of 2.49 sen previously.
  
  "Recently, the group reshuffled the top management positions at CERS so as to have more direct involvement in the day-to-day operational matters. Moving forward, we hope to turn around the losses at CERS and register new sales for the financial year ending 2010," it said in the statement.
  
  For the nine months to September, net profit plunged 86.6% to RM2.46 million from RM18.35 million in the corresponding period of FY08, while revenue jumped 38.3% to RM513.4 million from RM371.13 million.
  
  The company said that it remained "cautiously optimistic" on prospects of the oil and gas industry in the international market .
  
  It said despite the losses registered in 3Q "we remain confident that we are able to overcome short-term losses" as the company continuously enhanced its services to the oil majors in Malaysia and overseas market

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Tanjung Offshore reaches OSK Target!

On 4th October, there was an article on Business Times which states the following:

• OSK Research has raised its recommendation to a 'buy' with a target price of RM2.69..

Tanjung Offshore closed at 2.68 yesterday and is currently trading at 2.71.

There is a strange and funny regarding the way OSK recommended this stock. Take a look at the recent chain of events.

Firstly, Tanjung Offshore reported its earnings on 28/8/06.

• Quarterly rpt on consolidated results for the financial period ended 30/6/2006

Well, the earnings in all honesty wasn't too happening, in fact perhaps it was kind of dismal. So folks like OSK decided to give it a downgrade. Which was rather rational in my opinion.

• Tuesday, August 29, 2006
  
  TAKE PROFIT (Downgraded)
  
  Price RM2.43 Target RM2.34
  
  Time for a Breather
  

That was their header of their research report. A downgrade from 2.43 to 2.34. Kinda miniscule isn't it?

Downgrade to TAKE PROFIT. Adjusting for the 1-for-2 bonus issue (ex-17 th August), TGOFFS has appreciated by 63.5% since our initiation on the 13 th of April. Although we remain positive on the company’s long term prospects, we feel that such an excellent run up presents investors with an opportunity to TAKE PROFIT while awaiting for more good news in coming months. To also note that the 46.4m shares and 9.3m warrants from the bonus issue will be listed today.

And the stock, Tanjung Offshore did fall. Well, as 'MUCH' as to about 2.32.

But....

consider this issue. What OSK did then was rather amazing. OSK then quickly released a report, upgrading it to NEUTRAL!

• NEUTRAL (upgraded) Price RM2.32 Target RM2.34
  
  A More Reasonable Price
  
  Share Price corrected to Fair Value. Since we downgraded TGOFFS on the 29 th of August, the share price has dropped by 4.5% to a more reasonable level close to our fair value. We feel this correction was important as TGOFFS share price had run too far ahead of fundamentals at that point of time.
  

See the price target? 2.34!!!

Any how and any which way is also possible. They downgraded to 2.43 to 2.34 and when the stock falls to 2.32, they quickly upgraded the stock back to 2.34!!!

Makes you wonder, doesn't it?

And this was their reasoning...

Upgrade to NEUTRAL. Although we are maintaining our forecasts at this juncture, due to the reasons above and the potential upside from possible asset acquisitions, we upgrade TGOFFS back to a Neutral. We remain very positive on management and the outlook of the overall industry.

It's like... errr... why bother downgrading in the first place? Right?

And look at the frame in which all happened. That initia Downgrade was posted on 29th Aug. The UPGRADE article was then made on 7th Sept.

See how fast their opinions changed??

And then, on Oct 3rd 2006, they wrote the following. (That Business Times article was based on this write-up.)

LOL!!!!!!

here were their reasonings...

• New Contracts. TGOFFS announced a RM10m contract to supply electrical switchgear to Larsen & Toubro for the Petronas lube oil plant in Melaka. Aside from this, TGOFFS had also announced a new contract for the provision of Siemens gas turbine maintenance services for Petronas Carigali worth RM13m for 5 years. These contracts indicate that TGOFFS is still actively seeking to grow the engineering equipment and maintenance services businesses.
  
  Delay in MOPU... Although the Cendor MOPU was delivered to the site on schedule, we understand that there was a 1 month delay in the production due to factors beyond TGOFFS control. The announcement of the additional 10% stake in the Cendor MOPU will also be delayed until November due to restructuring in the MOPU partners. We have only factored in contribution from the additional 10% stake in our FY07 forecasts and make no changes to this slight delay but the 1 month oil production delay reduces our MOPU GP forecast by RM0.2m.
  
  …offset by higher contract & margin expectations. Given the new contracts announced and our expectations for more contracts in 4Q, we are bumping up our engineering equipment revenue by 3.5% and our margins to 8% (previously 7.7%). We also revise up FY07 GP margins for the offshore vessel business to 45% and for drilling rig rental to 5.9% in line with industry figures. As a result, our FY07 net profit is up by 10.7% closer to management’s guidance.
  
  Marine vessels looking good. Pinang 3 & 4 are to be delivered to TGOFFS by mid and end October respectively. We understand that Petronas will be releasing more contracts for vessels soon and TGOFFS hopes to lock in Pinang 3 and 4 into long term contracts as well as secure other contracts before ordering new ships.
  
  With all 4 support vessels launched and given the strong demand forecasted for offshore vessels, we are revising our Price to Book multiple for TGOFFS from 3.0x to 3.5x. Together with our earnings upgrade, our fair value (on average of PER and P/BV) is raised to RM2.69 and we upgrade TGOFFS back to a BUY.
  

So, currently Tanjung Offshore stock price is trading well past 2.69.

I do wonder what is next.

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