Mubadala Petroleum

Feb 4, 2023

Saturday, 04 Feb 2023 T7 Global CEO Tan says he is positive that the group can record a double-digit revenue growth in the financial years of 2023 to 2025 ONCE shunned by investors and bankers following fraud and money laundering allegations, T7 Global Bhd is making heads turn again after its share price surged by 21% in January. The stock’s uptrend could be a “leading indicator” for the stronger earnings that the energy solutions company is projecting for the next several years, including 2023. This is premised on the three major projects that comes onstream between late 2022 and 2024, with each of them serving high-profile players namely Petroliam Nasional Bhd (PETRONAS), Mubadala and Malaysia Airports Holdings Bhd (MAHB). In an interview with StarBizWeek, T7 Global chief executive officer Tan Kay Zhuin says he is positive that the group can record a double-digit revenue growth in the financial years of 2023 to 2025 (FY23 to FY25). “If we can achieve such a growth rate, our RM500mil annual revenue target can be achieved very soon, in fact faster than expected,” he says. The group, formerly known as Tanjung Offshore Bhd, posted its an annual revenue of RM264.35mil in FY21 – its strongest top line over a five-year period. Tan hints that the FY22 revenue could surpass the level achieved in FY21. In the first nine months of FY22, T7 Global reported a revenue of RM195.24mil, on the back of a revenue of RM80.3mil in the third quarter. “The fourth quarter is usually our strongest in terms of revenue,” he says without elaborating. The past seven years have been extremely crucial for T7 Global as it not only embarked on a “clean-up” to address several governance issues, but also realigned its business direction. This “realignment” includes exiting the property business that was ventured into under the previous board, and instead refocus on the core oil and gas (O&G) business and diversify into aerospace and defence as well as infrastructure construction. T7 Global has also been working towards building its exposure in areas that offer higher-margin and longer-term recurring income. One of such areas is integrated well services (IWS), which offers double-digit margin for the group, given its niche service offering.Tan’s father, Tan Sri Tan Kean Soon, who is the executive deputy chairman and holds a 19.87% direct and indirect stake in T7 Global, spearheaded the clean-up and the group’s restructuring. His other son, Tan Kay Vin, is the executive director of T7 Global and currently, heads the aerospace and defence division. As part of T7 Global’s realignment, which Tan says is “work in progress”, the biggest game changer is the business of leasing mobile offshore production unit (Mopu). Mopu is a type of purpose-built portable offshore structure that is used in the O&G production. O&G companies hire Mopu on a lease charter from service provider instead of constructing a fixed platform in order to reduce the initial development capital expenditure and optimise cash flow. Since 2020, T7 Global has clinched two Mopu deals. The first contract was awarded by PETRONAS Carigali Sdn Bhd for the Bayan field in Sarawak. Tan declines to reveal the contract’s value, citing confidentiality. However, an industry insider says the contract should amount to “about RM1bil spread over 10 years or so”. The tenure of the contract is from 2020 to 2032, including for the construction of the Mopu. T7 Global has begun recognising revenue from the Mopu from December 2022. The second Mopu contract – worth RM400mil – is for the Nong Yao field in Thailand, effective from 2022 to 2028. United Arab Emirates’ Mubadala Petroleum operates the Nong Yao field. At the moment, both Mopu contracts represent about half of T7 Global’s RM2.8bil order book. The rest include IWS, facility decommissioning and the baggage handling system (BHS) upgrade contract for the Kuala Lumpur International Airport (KLIA). For the BHS contract, T7 Global has partnered with Siemens Logistics Pte Ltd. While the Mopus have become a major revenue boost for the group, they also elevated T7 Global’s gearing level. Considering that the Mopus are undertaken on a built-own-operate model, it means T7 Global is responsible for the huge financing needed to fund the assets. As of Sept 30, 2022, the group’s borrowings stood at RM574.5mil, as compared to cash and cash equivalents of RM18.7mil. The net gearing level was 2.01 times, increasing from 1.26 times as at end-December 2021. Tan explains that the gearing level should come down gradually as the cash flow from the two Mopus would be used to repay the outstanding borrowings. “This year, we are looking at a similar gearing ratio as the Thailand Mopu is coming onstream towards the end of the year. “But, we are not worried because we are backed by assets (Mopus) and the assets will deliver a fixed and stable revenue over the contract period as agreed earlier with our clients. “Similar companies in our industry have a gearing ratio of up to three times. So, our bankers also understand the nature of the business and they know that our Mopus can deliver a stable income,” he says. However, Tan acknowledges that the group’s gearing level may stay elevated and increase further, if the group takes on more big budget Mopu contracts. Currently, out of T7 Global’s RM2bil tender book, half of the value is made up of bids for two Mopus. Looking ahead, Tan says T7 Global will continue to focus on South-East-Asia. “This region has shallow waters that are suitable for Mopus. Our other potential destination is the Middle East, but that won’t be in the near term,” he adds. Outside of the O&G landscape, Tan says another big revenue generator for the group in between 2023 to 2025 is the BHS contract. While he declines to comment on the BHS contract value, it was reported previously that MAHB, which operates the KLIA, has allocated up to RM1bil to modernise the BHS at the country’s largest and busiest airport. “So, this year, we will see the revenue from Bayan Mopu and the BHS contract, lifting our performance. “The full-year revenue contribution from Nong Yao Mopu, however, will only be seen in FY24. This means that next year will be a much stronger year for us,” Tan adds. On the aerospace and defence business, Kay Vin says T7 Global is part of the world’s aerospace supply chain providing comprehensive special processes complying with the highest and most stringent standards. T7 Global owns Malaysia’s first fully automated aerospace metal surface treatment facility in Serendah, Selangor. Kay Vin says the facility, which was only opened in the midst of the movement control order in 2020, is accredited by several big names in the aerospace industry, including Boeing. “For example, in this region, we are the only one approved by Triumph Group. So, all the contractors of Triumph Group requiring the metal treatment process for their parts will come to us. “The facility currently focus on servicing the aerospace industry, but it is also capable of serving other clients in the semiconductor and medical industries. “This business gives us a double-digit margin in the teens, but we are still working to improve the margin and contribution to our overall bottom line,”says Kay Vin. When asked about dividends going forward, Tan acknowledges that it will be “tough” to pay dividends if the group undertakes a new Mopu project. “We want to really stabilise our bottom line first and after that, a dividend policy can be established,” he says. Article type: metered