Stock price 

40.0 c

52-week
range

21.8 – 50.0 c

PE (ttm)

8.9

Market cap

S$56.3 m

Shares outstanding

140.8 m

Dividend
yield (ttm)

3.75%

Year-to-date return

65%

Source: Bloomberg

Federal International (2000) has maintained its profitability despite the slump in the oil & gas space that it operates in. It has also delivered dividends in FY15 and FY16, and it has a low level of borrowings.

Its 1Q2017 results are nothing to shout about (revenue was down 8% y-o-y to S$21.5 million and net profit down by 69% to S$410,000) but recent developments in the company point to interesting times ahead. 

In particular, Federal has inked MOUs with two big Chinese companies, which reflects Federal's valuable business experience and ties in Indonesia as well as its capabilities in the oil & gas industry.

Key takeaways from a 1Q2017 results briefing this week: 

kohkk6.17Koh Kian Kiong, executive chairman & CEO of Federal International. Photo by Leong Chan Teik1. Order book: Federal International has an outstanding order book of S$86 million as at 24 April 2017.

Of that, about $80 million is for the procurement of equipment and materials for the Zawtika Development Project Phase 1C, a gas field development project in the Gulf of Moattama, Myanmar.

The Zawtika project contribution is expected to be fully recognised this year. Compare this with Federal's 2016 revenue of S$89.5 million.

2. Land rig: Finally, Federal may be close to securing work for its 1,200 horsepower land drilling rig.

The potential customer has a geothermal power project in Indonesia.

This rig has been idle since 2014, not for lack of customer interest but because potential customers have not agreed to Federal's request for a downpayment.

Federal deemed the downpayment necessary because of the significant costs involved in mobilising the rig to the customer's site and recalling it should the customer prove to be not so creditworthy. 

LohCheeMeng6.16cLoh Chee Meng, CFO of Federal.
NextInsight file photo
3.  Write-back: Potentially, there could be a write-back of some provisions relating to Federal II, a FSO (Floating, Storage and Offloading) vessel.

Provisions totalling US$8.4 million were made in 2014. 

There has been ongoing negotiation on the matter which may be resolved sometime this year. The vessel is owned by PT Eastern Jason, which Federal has a 30% stake in. 

(Federal II: Total purchase cost US$60-70 million, current age less than 13 years, useful life more than 35 years).

4. Listing: Federal's key partner, an established EPCIC (Engineering, Procurement, Construction, Installation & Commissioning) contractor, PT Gunanusa Utama Fabricators (PTG), is expected to list on the Jakarta Stock Exchange in 2018.

Federal has a 2.6% direct stake in PTG and, if converted into equity, its past US$9 million loan to PTG will result in a 62.5% stake before any dilution during the IPO.

The President Commissioner -- another name for Chairman -- of PTG is Mr Koh Kian Kiong, who is executive chairman and CEO of Federal. 

5. Bids: PTG is planning to bid for projects totalling about USD1 billion in 2017, partnering Federal as its procurement specialist. 
 

To fund any successful tender, Federal recently signed a MOU with China Merchant Industry Holdings, a wholly-owned subsidiary of China Merchants Group, a state-owned China conglomerate. 

"I have the networking, I can bring in projects and give it to the Chinese to finance it, and we take a fee through supplying equipment and materials," says Mr Koh. 

6. LNG project: Federal has also signed a signficant MOU with COOEC and PT Timas to submit a proposal for the Engineering, Procurement and Construction contract for the construction of an LNG terminal in West Java.

COOEC is a large-scale general contracting company which is listed on the Shanghai Stock Exchange and is a subsidiary of state-owned Chinese oil company CNOOC

Federal shall co-manage the project and be given the first right of refusal to supply materials.

For the 1Q2017 briefing Powerpoint materials, click here.


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