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Weekly Stock Buy: Miclyn Express Offshore (MIO)

Miclyn Express Offshore (MIO) is a leading provider of service vessels to the expanding offshore oil and gas industry across South-East Asia, Australia and the Middle East.

The company supplies services to energy companies across the development cycle – from budding explorers to existing producers. MIO’s fleet consists of Offshore Supply Vessels, Crew/Utility Vessels, Tugs, Barges and Coastal Survey Vessels.

The company has managed a high utlilisation rate of its fleet, many of which are deployed on long-term contracts.

MIO has gone from strength to strength since floating in early 2010, capping off its growth with a 26% jump in 1H12 net profit from the prior corresponding period.

In the right industry

MIO’s indirect exposure to the energy sector gives it some leverage to oil prices.

As the price of oil strengthens due to Middle East supply concerns and an improving macroeconomic backdrop, major energy companies have incentive to accelerate production and exploration plans.

The increased focus on developing oil fields creates demand for energy infrastructure, and MIO is ideally placed to cater for this demand.

Impressive results

In February, MIO reported a knockout result in which 1H12 net profit rose 26% on-year to $33.1 million.

Revenue surged 74% to $126.2 million, driven mainly by an expansion of its fleet services. Utilisation rates strengthened from 78% in 1H11 to 85% in 1H12, reflecting the high demand for MIO’s services.

Among MIO’s key divisions, Offshore Support Vessels saw a 10% rise in gross profit, whilst Crew/Utility Vessels gross profit jumped 22% due to high utilisation rates and contributions from newer vessels.

The biggest growth came from MIO’s Third Party Vessels segment. Divisional revenue growth of more than 700% saw this business line become a prominent component of overall revenue.

MIO expects Third Party Vessels to continue its growth into FY12 and FY13 due to potential upcoming projects. This is notable considering this division requires no capex and additional overheads (implying revenue growth at little cost).

Outlook

MIO was upbeat about the outlook for FY12, citing the growth in Australian LNG projects as well as the expanding opportunities in South East Asia.

Higher oil prices are driving activity in the energy sector, and MIO can therefore expect increased demand for its services.

The company’s healthy balance sheet and high profit margins were also on display in the 1H12 results.

We expect these factors will continue to underpin MIO’s shares and will be a stock to watch for a while yet.

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Leighton Holdings (LEI) Slashed Profit Guidance By 25%-38%

Leighton Holdings Limited offers a variety of project development and contracting services to public and private sector clients in the Asia-Pacific region.

Leighton provides design management, civil engineering construction, building, mining, process engineering, telecommunications, waste management and infrastructure operation and maintenance and property development and management. Leighton is listed on the Australian Stock Exchange and is a member of the S&P/ASX 200.

Leighton Holdings has slashed its full year profit guidance by 25%-38% to between $400 million and $450 million.

The company said that a quarterly review of its operations had uncovered a significant deterioration in performance since its December review.

The company specifically blames unforseen problems from troubled Australian toll road and desalination plant projects.

Brambles (BXB) Expects Outcome For Recall In Four To Eight Weeks

Brambles Limited is a global support services group which provides pallet and plastic container pooling services and information management services.

Brambles announced that it expects to get an outcome for the sale of its Recall document-management business within four-to eight weeks.

The company had previous said it expected an outcome by the end of March.

It has been suggested Brambles could get as much as two billion Australian dollars for the business.

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Stockland downgraded its annual earnings guidance

Stockland is a property trust which invests and manages in retail and commercial properties in Australia and is a member of the S&P/ASX 200.

The Group also provides property development and management services, hotel management services and other related services including financing.

Stockland downgraded its annual earnings guidance from 31.6 cents to 30.5 cents per stapled security.

The company is blaming deterioration in the residential housing market and wet weather.

CEO Matthew Quinn said “the recovery is likely to be slow unless we see a reduction in bank interest rates to improve affordability and buyer confidence.”

Qantas Will Create First Low Cost Hong Kong Airline

Qantas Airways Limited (QAN) operates domestic and international airlines under the widely known Flying Kangaroo banner.

These airline operations are complemented by extensive holiday travel activities, catering facilities for QAN services and external customers, ground handling of baggage and freight, and engineering and maintenance services. QAN offers both premium and discount airlines.

S&P/ASX 200 stock Qantas Airways announced that it will create Hong-Kong’s first low-cost carrier.

Jetstar Hong Kong will be formed with joint venture partner Eastern Airlines with the aim of cornering the fast-growing Chinese market.

The initiative comes as the airline continues of expanding outside its home country to reduce costs and position itself to tap into the growing Asian economies.

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Stocks To Watch: Energy World Corporation (EWC)

Energy World Corporation (EWC) is a Hong Kong-based integrated energy company, involved in the production and sale of power and natural gas.

The company owns and operates two power plants – one in Indonesia and the other in Alice Springs Australia.  It also has gas interests in the two countries.

EWC’s future lies in its ability to service Asia’s growing hunger for LNG.  By focussing on the two ends of the LNG supply chain, EWC aims to not only supply the LNG but to invest in the infrastructure needed for distribution to market.

Unlike conventional LNG projects, EWC has identified a more compact and efficient gas liquefaction process through its so-called modular LNG facilities.

Magnificent Modular

EWC has proposed an unconventional, yet intriguing, alternative to the more traditional LNG processing facilities.

The company aims to build modular LNG facilities at its sites in Australia, PNG and Indonesia.  Typically, an LNG facility is a large-scale project that requires billions of dollars in capital spending, as well as a high level of gas reserves to underpin development.

Furthermore, financing for the project is usually dependant on the company securing long-term off-take agreements with its customers.

Instead, EWC has embarked on a plan to build a higher number of smaller-scale LNG facilities that would require less gas reserves and estimated capex of only US$125 – $150 million per facility (train).

This would allow EWC to construct its facilities faster, which means quicker delivery of LNG to its markets. Moreover, the small-scale nature of the facilities allows for quicker and less costly dismantling when a gas field is depleted.

Asia all the way

EWC’s aim is to develop both ends of the LNG supply chain. This would entail sourcing the gas, to producing the LNG and then distributing to Asian markets.

Asia’s economic growth will in large part be fuelled by alternative energy such as LNG.  This growing hunger for LNG has led countries such as China and India to build LNG receiving and re-gasification facilities.  EWC is thus positioning itself to feed this hunger

EWC’s assets will be strategically placed in the Asian region, with an LNG receiving terminal in the Philippines, and modular LNG facilities in PNG and Indonesia

EWC is looking to build such a facility at its Sengkang site in Indonesia. The facility would have planned production of 2 million tons per annum (MTPA), via a combination of four 0.5 MTPA trains.

There are already indications of strong demand for EWC’s supply. An agreement has been signed with the Indonesian government for the supply of 1.5 MTPA, but this may increase to 5 MTPA if sufficient gas reserves are proven up.

In more good news, EWC recently secured approval from the Indonesian government to hike the gas price from the Senkang site.

The higher gas sales price would provide an additional $22 million in revenue and $5.2 million in net profit, for 2011.

Hong Kong listing to assist with future funding

EWC has secured the necessary funding for its Indonesian project plans, whilst discussions are ongoing regarding funding for projects in the Philippines.

EWC’s future ability to raise capital is likely to become easier once it obtains approval to list on the Hong Kong Stock Exchange. The group announced the listing application on Friday.

Listing on one of the world’s major exchanges in Hong Kong will not only broaden its shareholder base but significantly raise its global profile.

Outlook

We see inherent value in EWC given the way it has positioned itself to feed Asia’s growing hunger for energy.

Instead of large-scale LNG projects, EWC has opted to develop its modular LNG facilities. These have the potential to provide a competitive advantage through their mobility and low cost structure.

The proximity of its terminals and facilities to the higher growth Asian countries suggests EWC can be a key player in this lucrative market.

We anticipate these factors will continue to underpin EWC’s share price and as such think it’s a stock to watch in the near-to-medium term.

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Sigma Pharmaceuticals (SIP) posted a FY12 net profit of $49.2 million

Sigma Pharmaceuticals Limited manufactures, wholesale and distributes prescription, over-the-counter and generic pharmaceutical products. The Company also owns a number of pharmacy banner brands in Australia.

Small Cap Sigma Pharmaceuticals posted a FY12 net profit of $49.2 million, a massive turnaround from the $235.4 million loss in the prior corresponding year

The rise in profit came despite revenue falling 2.1% for the year to $2.9 billion.

The company said that it will pay a final dividend of 2 cents a share and also a special dividend of 1.5 cents, both fully franked.

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Katmandu Holdings Limited (KMD) Kathmandu 1H FY12 net profit of $5.9 million

Kathmandu Holdings Limited (KMD) is a provider of clothing and equipment for the travel and adventure market.
Retail locations are spread across Australia and New Zealand offering a range of products with technical specifications for different conditions. The company listed on the Australian Stock Exchange in the latter half of 2010.
Kathmandu announced its 1H FY12 earnings, booking a net profit of $5.9 million, a 43.1% fall compared to the same period in FY11.
The fall in profit eventuated despite revenue lifting 15.4% to $146.6 million over the period.
The company said that the sector was attracting more competition, and it does not expect any change in the weak retail environment in the second half.

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TPG Telecom Limited wholesales bandwidth and other telecommunications services. The Company also delivers a full range of telecommunications products and services to home and business consumers through its retail operations.

Telecommunications Stocks TPG announced its 1H FY12 earnings, showing a net profit of $55.7 million a 65% increase on the prior corresponding half. The results beat analyst expectations.

Revenue grew 17% to $324.5 million over the same period.

The company said that the growth continued to be driven by its home bundle plans, which grew by 49,000 in the half.

The company declared a 2.75 cent per share dividend, fully franked.

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Weekly Share Tip: Buy on KAR

Karoon Gas Australia (KAR) is focused on identifying, exploring and developing acreage that is highly prospective for oil and gas.

The company currently has three focus areas – the Browse Basin (Western Australia), Tumbes Basin (Peru) and the Santos Basin (Brazil).

Santos Basin

KAR has a 100% equity interest in five oil blocks in the Santos Basin, offshore Santa Catarina in Brazil.

The Basin has a history of oil discoveries, and importantly, KAR anticipates that new fields within its acreage can quickly be brought to production due to relatively shallow water depths and their proximity to existing infrastructure.

A three-well drilling campaign will begin later this year, and KAR is currently in the process of farming out some of its equity interest. KAR expects to complete the farm-outs in the coming quarter.

A farm-out will not only help fund KAR’s drilling campaign, but the strong interest it is receiving from prospective farm-in partners appears to validate the significant production potential of the block.

Browse Basin

KAR’s Browse Basin drilling campaign holds long-term promise for the group, this despite a year of contending with regulatory and operational delays.

KAR’s joint venture partner is ConocoPhillips, which holds a 60% stake in the project and is its operator.

The drilling campaign, likely to start this month, will see five to eight wells drilled initially.

The campaign will attempt to define the size of the resource, but pre-drill estimates of proven reserves (P-90) are 3 trillion cubic feet of gas.

Although funding risk is always a concern with gas explorers, KAR had $266.6 million at the end of the December quarter.

When factoring in the proceeds from likely farm-outs of its various projects, KAR expects to have sufficient capital to complete all drilling activities.

This implies a very low likelihood of KAR having to sell down more equity in the Browse Basin Project and/or announce a capital raising.

Outlook

KAR has emerged as an exciting oil and gas explorer, with several promising drilling campaigns about to get underway.

The group is sufficiently funded to complete its Browse Basin drilling campaign, and there is hope the drilling will lead to a sizable defined resource in the near future.

Regarding its South American operations, KAR anticipates reaching a farm-out agreement in the coming quarter.

This will not only improve its cash position but pave the way for the commencement of its Santos Basin drilling campaign.

We expect KAR to be a stock to watch in 2012, and see further upside for its share price.

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