SCOMIEN ... Mar10

Its strategy is to position itself as an urban transportation solutions provider with focus on the monorail sector. SEB will intensify its focus on core engineering activities (urban transportation), strengthen its research and development (R&D) initiatives and invest in new technologies. The proceeds from the machine shop business disposal would be used in building value and R&D projects for the urban transportation business that was taking off quite well currently.

SCOMIENG’s future earning is uncertain as it is in the process of transformation, though its transportation units has received many positive feedback. Scomi Group holds a 70% stake in SEB.

SEB’s machine shop’s revenue drop by more than half in the fourth quarter versus a year ago mostly due to a worldwide drop in drilling activities. Usually machine shop accounts for more than 50% of SEB’s revenue but monorail has overtaken it in terms of contribution especially due to the Mumbai monorail job with consortium partner Larsen & Toubro (L&T).

SEB, Scomi and L&T secured the US$545.02mil (RM1.846bil) Mumbai monorail project in November 2008, where SEB will deliver a total of 60 cars to make up 15 sets of four-car trains. SEB together with its partner, were also recently shortlisted as one of two consortia to undertake a US$1.7bil (RM5.6bil) monorail project in Sao Paolo, Brazil. Industry observers expecting this trend to continue as the group is actively bidding for more jobs in Brazil, Saudi Arabia and India.

SEB’s move to sell the machine shop business and the proposal by sister company Scomi Marine Bhd’s (40%-owned by Scomi Group) to sell its 29% stake in CH Offshore Ltd for S$143.5mil are due to the slipping earnings of these businesses.

This exercise is not part of the Scomi Group Bhd restructuring process, but to enhance the value of SEB’s urban transportation division. The US$110mil is recognised as the full valuation of the machine shop business. Scomi Group holds a 70% stake in SEB. The divestment will allow Scomi Engineering to focus on its monorail business and it is believed that there would be further news flow on the restructuring of the company.

Despite this, Scomi Group would still have a major exposure to the oil and gas industry as Scomi Marine, besides having its own offshore vessels, also holds an 80% equity interest in Indonesia-listed PT Rig Tenders Tbk that has 65 offshore vessels consisting of supply vessels, tug boats, accommodation and work barges. Scomi Group also still has its subsidiary, Scomi Oiltools, a leading provider of drilling fluids solutions and drilling waste management services.

Its official said the divestment or investment by Scomi as a group was driven by the target of 25% return on capital employed from 2011 onwards.