Scomi Marine Bhd’s long-term fleet expansion programme is expected to benefit from the current drop in vessel prices and the company is looking to acquire more vessels than it had actually planned for, said president Mukhnizam Mahmud.
“The market at that time was very different. Demand for commodities had pushed prices and charter rates of vessels to historical highs then.
“The original plan was to consistently acquire two or three vessels per year over the next three to four years with a budget of about US$150mil.
“But with the current softening market and if it remains at this level over the long term, we can possibly increase our acquisition to three or four vessels a year with the same capital expenditure,” he told StarBiz in an e-mail.
Citing an example, Mukhnizam said, the current price of a 5,000 brake horse power (bhp) anchor-handling tug and supply (AHTS) vessel was at least 30% lower than it was six months ago.
“The prices have fallen to a level where the downside is already limited in comparison to historical lows.
“We know it is difficult to predict the bottom but based on the current vessel prices and the expected charter rates, we are confident that the purchases that we plan should give acceptable returns on investments,” he said.
Scomi Marine is considering renewing its OSV (offshore support vehicle) fleet and has allocated funds to acquire at least two AHTS of 5,000bhp each for its operations in Indonesia.
“We also plan to acquire two product tankers through our joint venture in Vietnam that will service the Dzung Quat refinery, which will be commissioned next year,” Mukhnizam said.
He added that the company planned to acquire these vessels from the market as it wanted to put them to work as soon as possible.
The expansion programme, which focuses on enhancing and expanding its OSVs and marine logistics fleet, is to support Scomi Marine’s long-term goal to be an energy logistics company.
Scomi Marine, a 43% associate of Scomi Group Bhd, is also looking at opportunities in the tanker and coal bulk markets.
The robust acquisition of the OSVs will balance out the revenue contribution from the two main business segments – offshore marine services and coal logistics.
The coal logistics business contributed 75% to 80% of Scomi Marine’s revenue while the remaining comes from offshore marine services.
Mukhnizam said the company had not gone on an aggressive acquisition plan when the market was on an uptrend earlier, as the management believed that the robust market could not sustain and it wanted to wait for prices to drop.
Going forward, with its expansion plan now in the softening market, Scomi Marine is cautiously optimistic.
“Although the economic downturn has affected the business, our advantage lies in the nature of contracts that we have.
“As our major contracts are long term in nature, we have the visibility of our revenue streams for this year and next.
“Therefore, we can operate with the knowledge that our vessels shall be utilised over that duration,” he said.
He added that the challenge for Scomi Marine now was to run its operations effectively to ensure good income generation.
“The current low oil prices should benefit our operations as we expect our bunker cost to drop over the long term,” he said.
On its intention to dispose of 29.07% stake in Singapore-based CH Offshore Ltd, Mukhnizam said Scomi Marine was in no hurry to do so, as CH Offshore had a good track record and prospects.
CH provides a wide range of services to the offshore oil and gas industry.
“At the peak of the shipping market cycle, the valuation of CH was attractive. Based on those valuations, we considered the proposals that were offered to us but they did not materialise,” Mukhnizam said.
“Now, the conditions have changed and being a shareholder, we know the true value of the company and are in no hurry to dispose of our stake.”
Despite the economic downturn, CH was doing very well and should continue to bring in good results as the company had been able to lock in most of its charters, he added.