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Brokers' Take - Federal International
Brokers' Take - Federal International

(2007-08-29)

  Federal International
  Aug 28 close: S$0.745
  OSK, Aug 28

  AFFORDABLE oil & gas play: We initiate coverage on Federal International with a 'buy' and a target price of S$1.03, citing an upside of 36.8 per cent. The company has over the past two years made great strides into new businesses and is now reaping the profits of its labour. From a valve trading business, Federal now manufactures oil & gas equipment, owns an FSO vessel, has a contract for a power generation plant, and has delved into several joint ventures to expand its revenue base and create more recurring incomes. We expect strong net profit growth in the coming two years. FY07 should see 44 per cent growth, while expectations for FY08 are for a 25.6 per cent net profit growth.

  Growing orderbook: Federal's orderbook currently stands at some S$229.5 million, and we see them actively growing their base with more long-term contracts. Notable contracts on hand include the S$54 million for a 12-year cogeneration power plant contract with Natural Fuels Pte Ltd, US$91 million contract for the time charter of their first FSO to Petrochina lasting 10 years, and smaller contracts for manufacturing and trading businesses.

  Marine segment brimming with potential: We are sanguine about the prospects of this segment as it is known for its lucrative nature, due to the high demand for oil & gas storage as well as support vessels in the Asia-Pacific. Federal has indicated that it intends to eventually have a fleet of vessels to capitalise on demand in the industry and judging from the group's previous success with their first FSO, expansion should be achievable in the near term.

  Power could surprise too: This segment could also outperform expectations, should the group be able to sell its energy as well as carbon credits generated from the cogeneration plant. This will give additional income on top of the existing contract with Natural Fuels. Apart from this, Federal is looking for opportunities in other markets to carry out EPCC of power plants along with its partner, Utility Development Pte Ltd. BUY

《The Business Times》


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