HLG: Tanjung Offshore - Disappointing H108, Downgrade to HOLD (25 August 2008)

Tanjung Offshore Berhad HOLD



Price target RM2.00



Share price at 22 Aug RM1.86



Investment summary


Annualised H108 net profit was 23-35% below HLG/consensus forecast. We are keeping our forecast unchanged as we expect earnings in H208 to be higher with the delivery of four new vessels from now till end of FY08 and higher billings from engineering equipment division. However, we think near term share price weakness could prolong with the proposed rights and new warrants to fund its vessel expansion plan. In view of the near term dilution in EPS from the fund-raising exercise, we cut our PT to RM2.00/share and downgrade our rating on TOFF from BUY to HOLD. We are positive on the oil and gas support vessels segment: (1) recent award of multi-year charter contracts by Petronas re-affirm our view that charter rates will hold for the next 3-4 years; (2) vessel supply-demand remains tight given that shipbuilding yards are filled with orders up to 2011/12.



Downgrade to HOLD

H108 earnings are 23-35% below HLG and consensus. We expect full-year earnings to meet our forecast on new vessel delivery and higher equipment billings. TOFF is highly geared and has proposed a rights issue to fund its expansion. We think the rights will dilute near term EPS and downgrade the stock to a HOLD.