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Quarterly Report For The Financial Period Ended 31 December 2019

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Condensed Consolidated Statement Of Profit Or Loss
For The Quarter And Year-To-Date Ended 31 December 2019

 Income Statement

Condensed Consolidated Statement Of Financial Position
As At 31 December 2019

Financial Position

Review of performance of the Company and its principal subsidiaries

(a) Financial review for current quarter and financial year to date

Review of performance


4Q 2019 vs 4Q 2018

(I) Operating Revenue

Despite the slight drop in revenue in 2019, ship charter revenue has increased by 35% from RM45 million in 2018 to RM60 million in 2019 which is in line with higher utilisation of vessels. The Group recorded loss before taxation of RM37.8 million in 2019 as compared to loss before taxation of RM22.7 million in the preceding year's corresponding quarter mainly due to maintenance of shipyard facilities, special survey and reactivation cost of vessels incurred to prepare vessels for charter.

On a positive note, the cashflows from operations have increased by more than double to RM22 million in the current year ended 31 December 2019 as compared to RM10 million in the preceding year ended 31 December 2018.

Chartering Division

Chartering division achieved an increase in revenue in the current quarter ended 31 December 2019 by more than double, from RM11 million in the previous corresponding period ended 31 December 2018 to RM23 million quarter ended in the period ended 31 December 2018. This is in line with more contracts won.

The higher operating loss before tax in the current quarter is mainly due to the impairment on trade and other receivables, special survey and reactivation cost of vessels incurred in current quarter to prepare vessels for charter.

Shipbuilding Division

Revenue remained consistent for shipbuilding division in the quarter ended 31 December 2019.

Material changes in the quarterly results compared to the results of the preceding quarter

Review of performance

Current Quarter vs preceding quarter

Despite the seasonal variation due to monsoon season, the Group managed to achieve a higher revenue for chartering from RM20m in the preceding quarter as compared to RM22.5 million in the current quarter. The current quarter loss is mainly due to maintenance of shipyard facilities, special survey and reactivation costs to prepare vessels for charter, impairment of trade and other receivables and higher unrealised foreign exchange losses.

Commentary on prospects

There is more optimism over prospects for the oil and gas industry on the back of stable oil prices, prompting higher levels of offshore drilling activity, construction and maintenance projects. The Group will continue to manage costs and increase efficiency in this recovery economic climate to improve our competitiveness and resilience. Riding on our strong foundation, we are confident that the Group will achieve good results going forward. The group's borrowings reduced significantly from RM143 million in 2018 to RM 110 million in 2019. This speaks well on the viability of the Group's business despite the tough conditions in which it operates. At the same time, with reduced gearing the Group will have a stronger balance sheet to take on additional financing to fund expansion. By the end of Quarter 1 2020, we will settle the term loans for most of our vessels, henceforth, only two vessels are encumbered to the Bank. This will ease the Group's cashflow and profitability.

Based on industry analyst reports, the oil market reacted positively to the Organisation of the Petroleum Exporting Countries' (OPEC) recent decision to extend oil output cuts by another 9 months to March 2020 and US sanctions against exporters Iran and Venezuela. Meanwhile, analyst believes that oil prices will see some stabilisation for 2020, supported by demand and supply fundamentals. On the back of gradually steadying oil prices, analysts expect to see greater investments in the upstream space for the coming years.

Local upstream activities are expected to stay elevated from high levels seen in 2019, as guided in Petronas' Activity Outlook for 2020-2022. Kenanga research has identified biggest winners to include marine vessel providers, benefiting from a huge surge in the number of anchor handling tugs supply (AHTS) vessels. Base activities in maintenance are projected to increase for both onshore and offshore in tandem with this outlook.

The Group's chartering revenue increased quarter on quarter which indicates signs of a gradual pickup of its core activity of ship charter. The group's ship charter revenue has increased by 35% from RM45 million in 2018 to RM66 million in 2019 which is in line with higher utilisation of vessels and more contracts won. In addition, the cashflows from operations have increased by more than double to RM22 million in the current year ended 31 December 2019 as compared to RM10 million in the preceding year ended 31 December 2018.

According to the research arm of Kenanga Investment Bank Berhad, contract flow started to show signs of a gradual pick-up for the past four to five quarters. The newer jobs came mostly from the upstream activities. Research also indicates that the upward revision in most upstream sub-segments' activities could be due to the delayed work orders last year being pushed to 2019 which may potentially lead to better contract flows and further provide order-book replenishment opportunities for the support sectors. The improved contract flow is, nonetheless, a positive sign coming on the back of recent stabilising oil prices, as a result of (i) under investments in the yesteryears, coupled with (ii) increased local activities, as guided by Petronas' latest activity outlook and increased upstream spending. While 2019 has mostly been a rebound year, the analysts are expecting to see a continuation of the elevated activity levels going into 2020.

The Group will continue its emphasis on its core activities of ship building, ship charter and ship repair. The Group's shipbuilding division will be looking towards building vessels which have a niche market as well as enhancing its docking (ship repair) facilities, whilst continuous efforts will be taken towards optimising capacity utilisation of the Group's vessels. The Group is also looking at building new vessels that are more energy efficient and environment friendly, in line with tighter environmental regulations in the maritime industry. With the ongoing initiatives in sustainable cost rationalisation and exposures, we believe the Group is well positioned to tide over the current business challenges, of which the worst seem to be over.

With the Government lending stronger support to the maritime industry with the recent launch of the Malaysia Shipping Master plan, the country is set to become a self-sufficient and internationally competitive nation that can benefit us along the maritime industry supply chain. The local oil and gas sector will get more push from the government this year amid rising exploration and production activities.

The outlook for the global shipping sector into 2020 will remain stable, as higher expected earnings are counterbalanced by the US-China trade tensions and worldwide regulatory risks, says Moody's Investors Service. Based on AmBank research, with the outbreak of the coronavirus, it is likely to have some dampening impact on its economic performance in Malaysia. Nevertheless, with the current Covid-19 outbreak, analysts believe that its impact on Malaysia's economy would likely lead to moderate growth in the near term as the immediate weaker outlook is expected to be partially weathered by the potential uptick in domestic activities in the second half of 2020, mainly through a substantial contribution from government fiscal measures and the lagged impact of further monetary easing.

Barring any unforeseen circumstances or events, The Board is optimistic that demand for offshore marine support vessels will further improve in anticipation of a shipping recovery.