Handal Energy looks to diversify business through partnerships

TheEdge Wed, Jan 01, 2020 04:00pm - 4 years View Original


HANDAL Energy Bhd is looking to form partnerships with foreign technology providers to diversify into other businesses within the oil and gas (O&G) sector, says newly appointed group chief operating officer and executive director Terry Biusing.

“We are scouting for opportunities and credible technical partners. We can work with these foreign partners in O&G activities in this region and beyond,” the 52-year-old Sabahan tells The Edge in an interview.

While still focused on Malaysia, the company is eyeing expansion to Myanmar, Vietnam and Thailand by leveraging its internal capability and working with technical partners in new markets.

Biusing cites Handal’s existing partnership with Singapore-based Calm Oceans Pte Ltd to provide water injection mobile oil production units (MOPUs) to Petronas Carigali Sdn Bhd, as well as for future contracts. The joint venture sees Handal taking a 51% stake, with Calm Oceans holding the rest.

“In all JVs that we enter into, we want to have a minimum 51% stake because we want to be able to drive the business, with our partners providing technical support. This way, we can also further build our internal capability through others,” he says.

As for acquisition plans after taking 51% equity interest in Sabah-based Borneo Seaoffshore Engineering Sdn Bhd for RM25.5 million in July, Biusing says Handal is keeping its options open. “This will depend on future tenders and work. But yes, that is the only way we can grow.”

Handal had a cash balance of RM10.44 million and borrowings of RM24.66 million as at Sept 30.

According to the company’s 2019 annual report, it has set out a turnaround plan that aims for it to achieve a market capitalisation of RM500 million by 2022, which can only be achieved by firstly returning to the black.

Still, some may view this target as ambitious. Shares of Handal have risen by 16% over the past year to close at 36 sen last Thursday, giving it a market capitalisation of RM78.67 million.

Biusing says Handal is on track to break even in the current financial year ending June 30, 2020 (FY2020) and turn a profit in FY2021. “It is on track. We are moving in the right direction. In some areas, such as acquiring and diversifying into different businesses, we are ahead of schedule. And we are not going to stop there.”

On Nov 25, the company reported its first quarterly profit after six straight quarters of losses, suggesting its turnaround plan is gaining traction. In the first financial quarter ended Sept 30, 2019 (1QFY2020), it posted a net profit of RM1.41 million compared with a net loss of RM4.42 million a year ago. Revenue surged 2.8 times year on year to RM32.33 million.

Biusing joined Handal’s board of directors on Aug 15 last year as an independent director shortly after Borneo Seaoffshore Sdn Bhd emerged as a substantial shareholder of the company. He officially begins his new role on Jan 1 next year.

“When the new management or board took over about 1½ years ago, we put up an ambitious but achievable turnaround plan. The plan was to turn the company around and generate sustainable revenue growth and margins within five years,” he says.

“We are seeing signs of improvement but there is still quite a lot of things that need to be done to make it more sustainable. The revenue growth [reported] in 1QFY2020 is evidence that we are moving forward with the stake acquisition in Borneo Seaoffshore Engineering and maximising the latter’s capability in further growing the business.”

The acquisition comes with a profit guarantee of RM5 million from Borneo Seaoffshore Engineering for FY2020.

Handal’s turnaround plan is based on three pillars, including strengthening its core crane maintenance business and expanding it into Sabah and Sarawak. It also involves diversifying its mix of revenue into related businesses in the O&G industry, which sees Handal shifting from being an offshore crane services company to an integrated offshore services provider.

Biusing points out that the group pulled off a coup in September by bagging a contract from Sarawak Shell Bhd and Sabah Shell Petroleum Co Ltd to provide maintenance and repair services for 29 offshore cranes located off the waters of Sarawak and Sabah. “We expect the crane maintenance business segment to see higher revenue contribution from Sabah and Sarawak next year.”

Inevitably, the diversification into other businesses has led to contribution from the crane business falling to 30% of the group’s revenue as at September from about 60% as at March.

Handal had an outstanding order book of RM710.6 million as at Oct 31.

On prospects, Biusing says the outlook remains healthy for the O&G services business in Malaysia based on Petroliam Nasional Bhd’s capital expenditure commitment. Petronas president and CEO Tan Sri Wan Zulkiflee Wan Ariffin told The Edge in a Dec 9 interview that the national oil company’s total capex for 2020 to 2024 is estimated at RM255 billion.

However, Biusing notes that most of the exploration and development projects will be focusing on small fields, which entail lower capex.

“The majority of O&G fields in Malaysia are old. They require maintenance and replacement. That’s where we can provide [our services to] and penetrate the O&G sector. It is also aligned with our turnaround plan to focus on existing facilities that require maintenance services, as well as business development in Malaysia, this region and outside this region,” he says.

Biusing had barely settled into his new role when the company became entangled in local politics recently after it was claimed to be one of the beneficiaries of Petronas contracts due to its political affiliations.

He denies these claims, dismissing them as “a political agenda”.

“People who are in the O&G business know that the [tender evaluation] process is robust. There is no way any company can go and say, ‘Give me this contract’, unless of course it was awarded on a single bidder basis,” says Biusing, who started his career with Royal Dutch Shell in 1992 and was a chief operating officer at E&P O&M Services Sdn Bhd, a subsidiary of Petronas Carigali.

“But that is not how the O&G business works. For me, as a professional, I know how the process works. So long as we can demonstrate that we follow the process that is governed by Petronas, we are okay. And no board members are involved in any of the tendering process,” he says.

As at Nov 8, Handal group managing director Sunildeep Singh Dhaliwal and Sipitang MP Yamani Hafez Musa — son of former Sabah chief minister Musa Aman — held a 31.55% stake in Handal through Borneo Seaoffshore and its holding company, SeaOffshore Capital Sdn Bhd.

Handal founder and former executive chairman Datuk Mohsin Abdul Halim and his son Mallek Rizal Mohsin, who is executive vice-chairman of the company, have been selling down their stakes over the last few years, holding a combined 8.98% stake as at Dec 17.

Its other major shareholder is Wah Seong Corp Bhd managing director and group CEO Chan Cheu Leong, who has an 11.49% stake.

In his new role, Biusing says he will be focusing on all the operational aspects of the company such as “reviewing the business processes, optimising them, going through our overhead costs and looking at the resources that we have within”. “I give myself a maximum of six months to do this. But three months would be my ideal target.”

Sunildeep, meanwhile, will be focusing more on business development, acquiring new businesses and investor relations, adds Biusing. 

 

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