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FY 2018 was a satisfactory year for Kulim’s Oil and Gas (“O&G”) Division, as it posted a PBT of RM87.14 million compared to a LBT of RM134.50 million in FY 2017. The Division recorded an increased in revenue of RM469.92 million, representing a 14.81%higher compared to RM409.32 million achieved in the previous year.

During the year under review, our subsidiary, E.A. Technique (M) Berhad (“EA Tech”) contributed of RM419 million to the Group revenue, an increase of 14.18% compared to RM366.97 million recorded in 2017. EA Tech posted a PBT of RM90.36 million,against LBT of RM131.90 million in 2017.

Another subsidiary of the Group, Danamin (M) Sdn Bhd (“Danamin”), an engineering and quality assurance provider which caters to niche industries, also registered a satisfactory performance in 2018. Danamin recorded a revenue of RM50.92 million in 2018, an increased of 5.91% from RM48.08 million posted in the previous year. Oil& gas However, the Company registered a LBT of RM2.08 million versus PBT of RM1.12 million previously.

In Indonesia, the acquisition of PT Citra Sarana Energi (“PT CSE”) did not create a significant impact on our earnings in 2018.The PT CSE deal in Indonesia is part of our strategic decision to venture into upstream O&G business and move up the O&G value chain into Exploration and Production (“E&P”) activities.

This Indonesian venture is currently moving towards production stage and is targeted to go on-stream in fourth quater of 2019. Although it offered little or no contribution to the Group’s 2018 financial performance,we are confident that its contribution will grow significantly within the next few years as it enters into commercialisation phase.

Given that O&G exploration, production and operations involve a variety of risks which may expose the Group to substantial liability Kulim has ensured that the organisation practises high standard of safety precautions. Our Risk Management team continually monitors our data and has established a sound risk management strategy for the Group.

INDUSTRY DYNAMICS


The decision by the Organisation of the Petroleum Exporting Countries (“OPEC”)and its allies to start cutting global oil supply by 1.2 million barrel per day (“bpd”) from January will help the market re-balance itself in the first half of 2019.

The Organisation for Economic Co-operation and Development (“OECD”) region will contribute positively to oil demand growth,which is expected to increase by 250,000 bpd year-on-year, while the non-OECD region is assumed to see larger growth by 1.04 million bpd in 2019 (Source: The Star,11 December 2018).

Looking into 2019, Malaysian O&G sector stands to benefit from the projected recovery in crude oil prices and the expected increase in both upstream and downstream activities. Petronas, for instance, has pegged the oil price outlook at USD60 to USD70per barrel in its 2019-2021 outlook reportas compared to USD50 to USD80 in its previous outlook for 2018-2020. (Source:The Star, 25 December 2018).

UPSTREAM ACTIVITIES - INDONESIA


In November 2008, the Government of Indonesia awarded a Production Sharing Contract (“PSC”) to two (2) subsidiaries of PT CSE namely, PT Rizki Bukit Barisan Energi (“PT RBBE”) (formerly known as PT Radiant Bukit Barisan E&P) and PC SKR International (“PC SKR”) for the South West Bukit Barisan (“SWBB”) PSC. SWBB PSCis located onshore in the West Sumatera Province.

On 10 December 2014, Kulim signed a Conditional Subscription and Shares Purchase Agreement (“CSSPA”) to acquire 60% interest in PT CSE for USD133.55 million to gain a foothold in the Indonesian market. Subsequently, on 7 February 2016, Kulim inked a Supplemental Agreement (“SA CSSPA”) with the vendors to revise the investment cost downward to USD80 million, after taking into account the lower crude oil prices subsequent to the date of signing of the CSSPA.

The completion date of the CSSPA and SACSSPA has been further extended to 31 December 2019, pending the fulfillment of approval by the Government of Indonesia and Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi(“SKK MIGAS”) in respect of the Change of Control (“COC”) of the PSC.The acquisition of PT CSE is expected to be finalised in2019, subject to the said approval by the Government of Indonesia and SKK MIGAS in respect of the COC of the PSC.

The Government of Indonesia has approved the first Plan of Development (“POD”)for Sinamar area of SWBB PSC, with aprojected gross revenue of USD938 million. Following the POD approval, PT RBBE shall comply with the provisions regulated by the Government of Indonesia and SKK MIGAS to complete the development work at Sinamar area and continue the exploration programme at SWBB PSC.

It is a timely opportunity for Kulim to realise its investment in Indonesia’s O&G business at an attractive premium above its initial cost of investment upon the POD approval, via monetisation either through a Joint Venture (“JV”) with third party/ies or a “Cash Out” via dilution of KENSB’s equity in CSE for a huge potential return after development. The deal with potential strategic partner is currently in proposal stage and is non-conclusive.

To maintain Kulim’s investment in Indonesia O&G as a Group strategic business, a JV arrangement with a potential strategic partner would also be considered for the development of SWBB PSC production,as well as the expansion of CSE’s future business plans.

The potential opportunities mentioned above will be taken into account in determining Kulim’s future business direction, whereby they present great potential to be explored,particularly in generating new revenue and income streams for the Group.

SUPPORT SERVICES -MALAYSIA




E.A. TECHNIQUE (M) BERHAD(“EA Tech”)
A public listed company since 11 December 2014, EA Tech is a marine vessel operator whose principal activities are in marine transportation and offshore storage ofO&G, provision of marine port services and marine engineering services. Its activities are supported by a shipyard at Hutan Melintang in Perak, which has the capabilities in shipbuilding, ship repairs and minor fabrication.

FINANCIAL PERFORMANCE

For FY 2018, EA Tech posted a revenue of RM419 million, an increased of 14.18% from RM366.97 million recorded in the preceding year. The increased was contributed in part by the Group’s charter hire business, which saw an increased with new contacts secured with the acquisation of M.V. Nautica Gambira nd M.V. Nautica Langsat as well as the higher utilisation rates of our vessels.

Notwithstanding, there was an increased in revenue from Marine Transportation services due to the full utilisation of our FSU Nautica Muar. The company posted a PBT of RM90.36 million compared with an LBT of RM131.90 million in 2017, due to an adjustment of EPCIC project costs as there were several deletion in the scope of works and settlement of claims from customers.In addition, profit for the year would have been higher if it was not due to the foreign exchange losses and impairment of assets amounting to RM6.38 million and RM2.13 million respectively recorded in the same period. 

MATERIAL LITIGATIONS

As disclosed in the public announcement,EA Tech via its solicitor has filed a Notice of Arbitration dated 27 September 2018 with the Director of Asian International Arbitration Centre (“AIAC”) against Malaysia Marine and Heavy Engineering Sdn Bhd (“MMHE”).

Further to the Arbitration proceeding, EATech had on 5 October 2018 received a Payment Claim pursuant to Section 5 of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) from MMHE via its solicitor.

The Arbitration proceedings and CIPAA Payment Claim are not expected to have any potential business or operational impact onEA Tech. At this juncture, EA Tech is seeking advice and consultation from its solicitor to contest the matter

OPERATIONAL REVIEW

EA Tech operates a total of 45 vessels in its portfolio, of which 42 are owned by the Group comprising six (6) tankers, two (2) Floating Storage Units (“FSUs”)/ Floating Storage Off Loading (“FSOs”), five (5) Offshore Support Vessels (“OSVs”) and 29 harbor tug boats.The remaining three (3) vessels are charted from external parties. The average age of the tanker fleet is 11 years. All the vessels undergo regular and periodic maintenance,including dry-docking every 2.5 years or 5 years.

In 2018, EA Tech received a full-year utilisation of M.T. Nautica Muar, which was being deployed by Vestigo Petroleum Sdn Bhd at the Bentara SK315 field offshore Sarawak in the second quarter of 2017.

EA Tech’s ship repair and minor fabrication capabilities are vested in its 100%-owned subsidiary, Johor Shipyard and Engineering Sdn Bhd (“JSE”). Operating from its new shipyard in Hutan Melintang, JSE has the capabilities to construct one (1) vessel ofup to 10,000 Dead Weight Tonnes (“DWT”)or six (6) harbor tug boats at any one time.Upgrading works, including the construction of a new slipway, are currently still in planning stage.

To reduce an over-dependence on the O&G sector, EA Tech has been actively pursuing new business opportunities in providing port marine services.

During the year under review, EA Tech has been awarded contracts for Provision of Fast Crew Boats for Petroleum Arrangement Contractors’ Production Operations, which commenced in the third quarter of 2018. In order to serve these contracts, EA Tech is using two (2) units of its newly acquired fast crew boats comprising M.V. Nautica Gambir and M.V. Nautica Langsat and one (1) unit of existing crew boat, namely, Nautica TanjungPuteri XXX.

EA Tech has also been awarded contracts by Petroliam Nasional Berhad (“Petronas”)and Sungai Udang Port Sdn Bhd in thefourth quarter of 2018 to provide marine vessels services for the companies. EA Tech is using its own existing marine vessels,namely, Nautica Tanjung Puteri I, Nautica Tanjung Puteri XXII, Nautica Tanjung PuteriXVII, Nautica Tanjung Puteri II and Nautica Tanjung Puteri XVIII, as well as two (2) units of charter-in-vessels for the above said contracts

OUTLOOK & PROSPECTS

Looking ahead, EA Tech remains upbeat on the operating performance of its respective business segments. The fundamentals of the company remain strong, under pinned by a substantial order book of around RM572.49 million as at 31 December 2018,with an additional RM216.65 million for potential extension. The company has long term contracts for its marine vessels, which provide a stable and recurring revenue stream.

An immediate challenge for EA Tech in the coming year is to focus its resources and energy in devising well-defined plans and strategies to turn the company around.Given its significant strengths in the business, EA Tech is well-positioned to continue delivering shareholder value and achieve sustainable progress.

The Group’s optimism is also based on our exceptional pool of human capital, which is among our greatest assets. Our people are highly professional, knowledgeable,motivated and are the enablers of the Group strategies in moving forward. Hence,we have the right team to deliver the kind of performance that is expected by our shareholders from us.





DANAMIN (M) SDN BHD (“Danamin”)
Danamin provides high quality, cost effective and technology-driven engineering,Non-Destructive Testing (“NDT”), Quality Assurance, Asset Integrity Management and Inspection services to the O&G, Marine,Petrochemical, Refinery and Pipeline industries. Backed by a team of over 400 professional employees, including contract workers with the relevant certifications, the company has branches that are strategically located in the vicinity of its customers’ facilities

FINANCIAL PERFORMANCE

The principal contributors to Danamin’s revenue are its NDT and fabrication businesses. For the year under review, Danamin generated a revenue of RM50.92 million, a 5.91% increased from RM48.08 million posted in 2017. In 2018, LBT recorded RM2.08 million from PBT of RM1.12 million registered in the previous year.

OPERATIONAL REVIEW

Danamin’s vision is to be the preferred service provider to industries in the O&G and other specialised sectors. To realise this vision, Danamin complies with internationally recognised Integrated Management System (“IMS”) standards to ensure effective and efficient operations,remain relevant in the industry and safeguard the sustainability aligned with strategic direction of the organisation. The IMS standards consist of ISO 9001:2015(Quality), ISO 14001:2015 (Environment)and OHSAS 18001:2007 (Safety and Health) accredited by Bureau Veritas (“BV”).While the first phase of Petronas Refinery and Petrochemical Integrated Development (“RAPID”) construction project has come to the end, Danamin’s participation continues,particularly in the completion of GRE Non Carbon Steel piping lay down for Package 27 with Technimont Malaysia Sdn Bhd.

OUTLOOK & PROSPECTS

Moving forward, Danamin has an order book of approximately RM305 million from itsfive (5) years contract for the Inspection and Corrosion Monitoring Services (“ICMS”) with Petronas Group of Companies. With regards to its rolling mill activities, Danamin is eyeing a two (2) years contract worth RM50 million with MMHE, which is expected to be executed by June 2019.

The company’s new business in maintenance is growing, with an expected RM6 million revenue to be generated from various clients, covering tank maintenance, general factory and various transportation mode maintenance.