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Joined Nov 2017
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CorporateSTOCK: GFM (0039)
Blog 17 Jan 2020, 2:32:30 PM

As oil prices shot higher after a U.S. airstrike killed a high-ranking Iranian military leader, which traders fearful of retaliatory attacks from Tehran on Middle Eastern energy infrastructure, we can expect these key O&G stocks would be potentially rallied next week: 

1st Liners: Producers, FPSO & Rigs:

1. Hibiscus

2. Reach Energy

3. Sapura Energy

4. Yinson

5. Bumi Armada

6. Velesto


2nd Liners: Maintenance & Fabrication:

1. Dayang

2. Petra Energy

3. Deleum

4. Wah Seong


3rd liners: OSV & Downstream maintenance

1. Alam Maritim 

2. Perdana 

3. Icon Offshore

4. GFM Services - via a newly proposed acquisition of Highbase Strategic Sdn Bhd (HSSB). The latter’s existing orderbook would be a major boost to GFM. Given HSSB’s orderbook of RM261.4 million for over 5 years and assuming conservative PAT margin of 7%, new additional revenue and PAT to GFM would be RM52.3 million and RM3.7 million per year from FY20. GFM's 9M19 and FY18 earnings stood at RM9.1 million and RM7.6 million respectively.

Additionally, the more O&G activities in town, the more HSSB’s downstream maintenance services are also needed. 

Demand for O&G plant turnaround is expected to be positive as plant turnarounds are scheduled periodically and is part of legislation compliance. With the secured contract of providing plant turnaround services for PIC in Johor, this gives HSSB the credibility to bid for similar type of projects in other areas.

The latter’s services are critical as it helps to prevent from undue interruption of its clients’ production performance and avoid damages to clients’ facilities. 

Technical wise, the stock has signaled a bullish reversal as the stock has been positive divergence with weekly MACD histogram, with high possibility to rally upon closing at and above 33sen. Inflow of money into the stock has been increasing as shown in the daily MFI chart, which means strong accumulation in anticipation of the rally ahead.

Recall that the Group has recently proposed the acquisition of approximately 49% stake in HSSB. Additionally, GFM has also entered into a call option agreement, which grants GFM the right to exercise the call option to acquire up to 2% in HSSB @ 51sen/share, which HSSB shall become a 51%-owned subsidiary of GFM upon conversion.

Lastly, "I always believe that the share price move first and fundamentals come second". In other words, it is better to react now on GFM before the actual results come out!


Tq, Fred

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