Tuesday, February 12, 2008

Swiber - Joint Venture with Principia

This evening, Swiber announced that they had entered into a Joint Venture (JV) with Principia Recherche & Development SA ("Principia") to undertake the supply and sale of studies, design of offshore and marine facilities as well as related services in the offshore and marine industry in South-East Asia. The proposed JV will be 51% owned by Principia and 49% owned by Swiber's wholly-owned subsidiary, Kreuz International Pte Ltd.

The interesting fact is that Principia is a subsidiary of AREVA within the AREVA TA Business Unit; and this unit specializes in scientific engineering studies and in the design and sale of software applications which serve the worldwide offshore and marine business. AREVA is the world leader in nuclear power and is the only company to cover all industrial activities within this field. Principia, being a subsidiary of AREVA, provides services to customers primarily involved in high technology production. This would imply that they are technologically advanced in terms of the solutions and sofware they provide to their customers, and that Swiber is leveraging on their expertise to offer value-added services within the oil and gas industry in South-East Asia.

From the press release, it is not immediately clear what the JV is for: is Swiber intent on pursuing a separate business unit in which it helps to develop and sell software relating to the oil and gas industry; or is it using such technology to enhance its competitive edge within its EPCIC niche market ? The announcement does not make it particularly clear on this as Raymond Goh (CEO and Chairman) merely says that it demonstrates Swiber's commitment to become an "integrated service provider" and that Swiber's philosophy is to associate with "world class organizations". All well and good, but what's the tangible benefit to come from it ? Thus far, the JV with Rahaman in Brunei and PetroVietnam in Vietnam have yet to bear fruit and show concrete numbers (i.e.. contract wins). One can argue that the company is consolidating their base and building a foundation with which they can then start to aggressively bid for larger projects (assuming they have not done so already). Still, too much of a delay would indicate that they may have failed to fully leverage on these JV and may be spreading themselves too thin. Time will tell if these 3 JV will actually bring about more business in terms of contracts and LOI for Swiber.

The next paragraph in the press release on what Mr. Goh says offers some hints as to the purpose of the JV, though overall I would say it is still vague as this kind of technology is alien to me and rather technical by nature. Mr. Goh mentions "increasing demand for such services", which implies that the new JV will be offering services in the form of solutions for companies which require cost-cutting and innovation. It would seem that Kreuz and Principia will be working together to develop, market and sell such solutions; instead of Swiber making use of such solutions themselves to sharpen their competitive edge. Mr. Goh is also "excited by the enhanced prospects for growth which this JV offers", but this point has to be clarified because I am unsure what exactly the company is trying to grow ! This is not an existing business of the company and appears to be a departure towards technological-based solutions, and I am puzzled as to why the company is taking this direction instead of focusing on its core competence of EPCIC.

The best way to find out more about this JV is to attend the upcoming AGM for Swiber which should be held some time in April 2008. The FY 2007 results should be out by the end of February 2008 and I will be doing a review on that as well. Only by talking to the Management and understanding their underlying motivation for this JV will investors get a better picture of what is happening and be more assured that the company is not making a radical departure from their core competence.


Anonymous said...

Hi MW,
your excellent blog has pipqued my interest in Swiber. Am trying to learn more about the O&G industry currently. Can you tell me which websites you went to for your groundwork? or any books which might be of use? Thanks in advance for any help you can provide.

musicwhiz said...

Hello there,

Thanks for visiting ! Basically, for research, I read the company's Annual Report and also went to its website to understand its operations. There are sites such as rigzone.com which give updated news on the oil and gas industry, but that is more towards the entire industry and is not company-specific.

As for books, value investing for dummies in the "Dummies" series is pretty good for laymen to gain some accounting background and how to look at the qualitative aspects of a company. I am currently reading this book to get more insights into the value investing process.