Sunday, May 06, 2007

Swiber - Attending the AGM

After attending the Swiber AGM, below are my thoughts. Please note that I also made a similar posting on Sharejunction under the "Swiber" thread. I am merey re-posting for the sake of those who do not visit SJ.

1) There were queries on the O&G industry and how it can sustain the EPCIC activities. Basically, Mr. Goh mentioned that most of the exploration for offshore is still carried out in shallow waters (about 90%) and for Middle East, it is 100% shallow water. He sees deep water (currently 10% of the market) as the future and should it become more popular, Swiber will attempt to diversify into this market. But currently, he has a team of very experienced senior Mgt to develop the business. The new vessels planned in the second wave of fleet expansion are also part of the plan to stay ahead and to offer a better suite of services to customers. From what I gathered, they seem to be already planning a third wave of vessel acquisitions depending on the demand for their EPCIC services and the number of contracts they can secure.

2) I was assured that all vessel orders come with firm charter contracts, and that 14 vessels were slated for delivery this year, thus it will boost their fleet and allow for better marine support services. Since their business targets a niche market, there is healthy demand for their vessels to support the EPCIC services which they offer, and as mentioned in their Annual Report, marine support will only take up about 30% of their revenue pie, with EPCIC constituting the bulk of it.

3) More details of the S&L will be announced in due course, as Mr. Goh said that regulatory requirements have to be followed and when the deal is more firmed up, shareholders will naturally be informed through an announcement in SGXNet.

4) Mr. Goh himself is making many trips to the Middle East in order to negotiate for a potential deal and to build up his network and contacts. The BD dept has 3 staff including himself which are focused on building their competencies and reputation in parts of Asia which they have not secured a foothold yet.

5) Mr. Goh also mentioned that most competitors were located in the USA (4 of them), one in Japan and another somewhere else (can't recall !), but basically Swiber is the only Asian company doing EPCIC to be offered a major contract from Shell. Thus, the USA companies who are already in Asia face little or no competition from Asian competitors so far, but their cost structure is much higher as they do not have a RO or permanent establishment here. This would give Swiber a cost-competitive advantage, plus the Brunei Shell deal has cemented their reputation as one of the "bigger" players.

6) Overall, Mr. Goh expressed much optimism going forward as he believes the company is guided by a very capable and competent team who have the right strategic vision and plan to propel the company to greater heights. Most of the mgt team are from countries as diverse as Australia, France and New Zealand and they bring with them a wealth of experience. The sheerleg barge idea (on order for FY 2008) incidentally came from one of the Mgt team who is a non-Asian (sorry I can't recall who it is !).

7) Personally, I remain cautiously optimistic about the company's prospects. So far, they haven't clinched any major or minor projects after the announcement of the Brunei Shell deal and it would be premature of them to rest on their laurels after achieving one very significant success. Deal flow is important for the company and establishing offices in countries with prospects is equally important. In this aspect, Mr. Goh has 15 years of experience and he knows many industry veterans, so perhaps we can look forward to good news to come.

8) Note that on May 8, 2007, the 6-month moratorium for Pre-IPO shareholders ends and if the price goes down significantly, I see this as an opportunity to buy more of the company. Personally, I am vested at $1.01 and will not increase my position unless it dips below my buy price as I prefer to average down instead of averaging up.

9) The company should be releasing its 1Q 2007 results pretty soon. I do not expect a vast improvement over 1Q 2006 as I noted that most of the Indian LOI only begin in April-May 2007 which is in the 2Q 2007, and their order book carried forward from FY 2006 is about US$25 million, of which I do not know how many % will be recognized in 1Q 2007. Even then, their NP margin may not be as high as for FY 2005 because they may still be chartering vessels from 3rd parties as their own vessels are not ready yet. Thus, I feel we can only see significant improvement in margins and earnings once the rest of the LOI kick in and once the 14 new vessels come online.

More postings will be done on my investments in future, with my focus on value investing techniques. Readers should have a basic understanding of value investing by reading up on Warren Buffett and Benjamin Graham as I will not delve into details regarding the terminology used. Have a great week ahead ! Comments are welcome.

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