Success ... Oct09

Its subsidiary Seremban Engineering Sdn Bhd (SESB), which is expected to be spun off by the first quarter of next year (2010), may diversify further into the oil and gas (O&G) sector.

Listing SESB would unlock value as the process equipment unit could fetch much better valuation on its own due to its high-growth potential.

SESB has been growing rapidly. The palm oil industry, which is currently SESB’s biggest customer, has great prospects in the long run. Going forward, SESB has plans to diversify further into the oil and gas sector.

There would be no change in SESB’s management, decision-making process and board structure, as STC and SESB’s businesses are not directly related.

STC proposed last week to list SESB through an initial public offering (IPO) of 19.9 million new shares, or 24.91% of its enlarged share capital of 80 million shares of 50 sen each. The proposed exercise is expected to pare down STC’s interests in SESB to 65% from 100% currently. The IPO price has yet to be determined.

SESB specialises in the manufacturing of heat exchangers, process equipment and non-pressure tanks for chemical and other industrial storage use. STC itself is mainly involved in manufacturing, design and sales of transformers and lightings, and in industrial engineering design.

STC first bought a 60% stake in SESB in March 2007 for RM14.63 million. It increased the stake to 100% a year later. The acquisition has worked well for SESB, which has seen its fabrication capacity grow to five plants from three previously.

In the first six months of this year (2009), SESB contributed RM4.52 million in net profit, or 35% of STC’s group net profit of RM12.9 million, and RM36 million in revenue or 37% of STC’s total revenue of RM97.4 million.

Although overseas business makes up around 60% of SESB’s business, the company would keep Malaysia as its manufacturing base, as the country offered a strategic location to serve as a low-cost fabrication centre for its European clients.

SESB currently had over RM20 million worth of contracts that would keep it busy until at least the first quarter of next year (2010). It is also bidding for around RM50 million in additional fabrication jobs, mainly from overseas customers.