Radiant Utama Interinsco Cheap Exposure To a Growing Industry

Company Profile
Radiant Utama Interinsco (RUIS) provides operation support, inspection and certification, offshore services and others to the upstream oil & gas (O&G) industry. RUIS has two business segments: i) light-based services, and ii) asset-based services. The former is an operating support and inspection services provider and accounted for ~77% of the Group’s FY12 revenue – this division traditionally experiences blended gross margins of 7%-8% and net margins of 1%-2%.

The latter contributed ~23% to last year’s topline and typically posts blended gross margins of 20%-30%. RUIS is also the first Indonesian O&G support operator to acquire a high-tier vessel used for drilling purposes. This should provide the Group with first mover advantage in complying with the Government’s Cabotage road map.

Highlights
Potential tenders with commencements in 4QFY13. RUIS is bidding for a tender to supply floating, storage and offloading (FSO) services to CNOOC (Not Rated, 833 HK) for operations to commence in 4QFY13. Given the Group’s highly leveraged position (FY12 net gearing: 223%), it can only use a re-chartered vessel via partnership with a foreign company.

The CNOOC deal will command USD34,600 per day worth of tariff and RUIS will take a 2.5% re-charter commission. Concurrently, the Group is bidding to supply floating, production, storage and offloading (FPSO) services to Santos (Not Rated, STO AU) in 4QFY13 via a partnership. The commanded rate is estimated at around USD30,000-USD35,000 per day with RUIS able to take a 5% re-charter commission.

Around 78% of FY13 revenue already secured
RUIS has a solid current backlog for 2013 amounting to IDR1.4trn. Around 78% of FY13’s revenue target has already been secured and we believe that new tenders will be obtained next year that will provide a slight contribution to FY14F revenue. Together with the expected expansion in FY13, we expect the Group’s FY14F topline to grow by 15% y-o-y. Management also expects more potential tenders to come.

Expected positive cash flow to lighten debt burden
We see funding limitation risks for RUIS in acquiring heavy assets such as vessels. However, the expected positive operating cash flow in FY13F and FY14F should lighten its burden and we expect net gearing to fall to 171% in FY14F from the estimated 184% this year.