Radiant Utama Interinsco, Cheap but Highly Leveraged

Bright prospects
RUIS provides services to oil and gas (O&G) companies such as operation support, inspection, offshore services and others. The company has vast management experience with 38 years in the O&G upstream business services and is highly exposed to reputable O&G clients. We see opportunities for RUIS in strong cross-selling services and margin expansion should the company expand to “Asset-Based” services from its current dominating “Light Asset-Based” exposures.

Playing in the high-tier based segment
RUIS is the first Indonesian O&G Support Company which acquired a high-tier vessel vessel used for drilling purposes. This should provide a 1st mover advantage follow suit with the government’s cabotage road map. RUIS has 2 business segments which are “light-based services” and “asset-based” services in the O&G upstream businesses. “Lighted based services” which are operating support-services and inspection services, takes into account ~77% of 2012 revenue and typically has blended gross margin of 7%-8% and net margin of 1-2%.

Potential tenders with commencements in 4Q13
RUIS is in tender process to supply Floating, Storage and Offloading Unit (FSO) service for CNOOC which will start operating in 4Q13. Given RUIS highly leveraged position (net gearing at 223% in 2012), RUIS can only use a re-chartered vessel scheme with foreign partnership. The deal would command USD34,600/day worth of tariff and RUIS will take 2.5% re-charter commission.

Furthermore, RUIS is in tender process to supply Floating, Production, Storage and Offloading Unit (FPSO) service for Santos and to commence in 4Q13 with a partnership scheme as well. The commanded rate would be at USD30-35k/day and a 5% re-charter commission to RUIS. RUIS has solid current back-log for 2013 and 2014 amounting to IDR1.4trn and IDR700bn respectively. Around 78% of 2013 revenue target is secured. The management expects more potential tenders to come. The main challenge is fund raising as we see limited funds for them to acquire heavy assets such as vessels.

2013 revenue and core profit to increase 12% y-o-y and 19% y-o-y. Based on our visit with the company, the management expects this year’s revenue to reach IDR1.8trn (+12% y-o-y) and core profit to reach IDR50bn (+19% y-o-y) which excludes unrealized forex gain/loss.

Cheap but highly leveraged. Using management’s guidance, RUIS is trading at 4.2x 2013 core PER (excluding unrealized forex gain/loss), a 75% discount to regional O&G services peers. Main concerns are: 1.) Highly leveraged position hampers “Asset Based” expansion, 2.) Forex risk.